What's up? The price of gold!

Note: Opinion not financial advice!

What is going on with the gold price!? We're heading to the point where owning gold may soon be the exclusive preserve of the very rich! (With perhaps us mere paupers able to afford the tiniest, light-weight pieces which we daren't wear for fear of being mugged or losing a mortgage payment when an earring falls off!)

Will all the gold in circulation inevitably be melted down, turned into bars and sit in dark government bank vaults never to be seen again? Will we need to go to a museum to show our grandchildren the mythical yellow metal in the future!?

It's not quite at that point yet but we're definitely in new territory. At the time of writing, if you had a drawing pin (say half a gram) made out of gold you'd have £45/$60! For that teeny little bit of gold!

So what's happening?

1. Gold isn't actually going up, currencies are going down! Bear in mind - gold is an international commodity - It doesn't matter where you are standing in the world, in the middle of the New York gold district or in the Amazon rainforest, if you have a gram of gold in your hand it's worth the same to anyone else wherever they are, it's not bound by currencies or borders, the price is the price. So if someone comes along and wants to buy your gold using their local currency you'd want to check what that is worth when converted to your local currency before you hand it over wouldn't you? Now say your currency just this morning has crashed for some reason then your customer would be able to buy more gold from you than they could yesterday because their currency has remained strong whilst yours has tanked. So in this example the international gold price is the same but you can buy less of it because your cash is worth less. Therefore, from your perspective, the price of gold has gone up. To everyone else in the world the price looks the same.
2. Ok, the price of gold IS going up! This is just about supply and demand - if the gold price is outpacing other investments then institutional investors; hedge funds, pensions, governments etc then they think - "ok we'd better move capital from things not doing so well and jump onto what's doing well"...or they risk being left behind. Smaller investors also see the price going up and up and want in as well. So this is just supply and demand in action - there's a finite supply so as the demand goes up; so does the price, same as anything, eggs, sugar, bitcoin, platinum, silver etc.
3. Both 1 and 2 are happening at the same time - and this is what we're seeing and why prices have gone crazy. Unusually, stocks and shares are rising at the same tine as the gold price - this almost never happens and suggests weird times/instability/unprecedented stuff ahead! And of course you can end up in an ever increasing spiral - price goes up, demand goes up, supply goes down, price goes up...

So what causes currencies to be devalued and/or the price of gold to go up? Well the answer is a lot of complicated interlinking factors. But as a rule, and this is important, whenever there is uncertainty, so for example, wars starting, governments making decisions likely to affect the economy, recession looming then you get both 1 and 2 happening. 

When there is "blood on the streets" all bets are off and people like to be holding tangible assets - it's the mammalian self preservation instincts kicking in - we just naturally want to hoard all the resources around us and disappear into our burrows with our other furry family members! If you've got a load of gold coins in your sock drawer then it doesn't matter if governments fall or wars rage, you are sitting on something that everyone wants and crucially, you control it. 

Governments come and go, borders are fought over and exchanged, share prices tumble and companies are ruined overnight by one comment from their CEO...but gold is beautiful, immutable, incorruptible and beloved by humans! 

So, to the future - Q: Is gold still a good investment? A: Yes and no, with a side of...who knows! 

Look, if you buy gold at a retail price and then you try to sell it the next day, you'll be losing money (unless you yourself retail it to someone else). But if you buy gold, wear it, enjoy it and then come to sell it down the line, you may find that even the scrap value is now more than what you paid. If we look back at our sales over the last ten years, almost everything we've sold would be worth more now just in scrap value. Boo hoo, poor us! But that's ok because we could re invest the money into more gold and make a living along the way. 

You have to ask yourself, what can you afford to spend on gold? What else could you do with the money? If you have disposable income that you can afford to speculate with, history shows that at least a percentage of your investments in gold would have done you well. And gold is still a wearable, usable, enjoyable investment...it's just going to cost you more to buy into the game at the moment! 

But how many things that you buy in life can you say that you owned, loved, got use out of and then sold for more than you paid for it? The answer is a) your property b) an antique or collectible you got lucky on ($10m for a Pokémon card!?) and c) gold. 

It's possible of course that the supply part of the supply and demand formula changes - eg if we suddenly discover lots more gold then the price would go down; It's true that there are gold deposits (eg in the deep ocean) that are known but not cost effective to mine...until now. Perhaps we'll go back to the moon or bring a solid gold meteor back to earth! Or we'll work out a cost effective way to turn base metal into gold (entirely possible but it costs millions to make just a gram - currently anyway!) But for now, you can assume the supply part will not drastically alter, indeed, as more and more ends up institutionalised in bank vaults you could argue the actual supply will go down, especially as populations continue to rise. 

So what about demand? For the last 200 years or so gold has gone up and up in value when you strip out inflation - it doesn't look like demand will fall. There are lots of factors at play here, consider crypto - if this continues to rise in value and acceptance then it's conceivable that institutions could switch some of their holdings away from gold and into crypto. In that case the demand drops and the supply increases. I often wonder what the gold price would look like if bitcoin had never been invented! Conversely, imagine if the crypto market collapsed overnight (sounds crazy now but this has happened numerous times throughout history and look at NFT's recently - where an NFT bought for $100m is now worth $100!), presumably a big chunk of this would go into gold and it's not crazy to think the price could double overnight! 

So in summary I can see the price overall continuing to rise in the short term to a point where it bounces back down a little, settles and remains steady(ish) for a year or two and then spikes again, levels off again and so on. This is not a revolutionary opinion as this is just what has happened since...forever. 

I think you might also see the industry re-thinking fineness levels - Eg I can imagine 5 or 6 carat gold being a thing - this would allow more people to own "gold" even though there wouldn't be much actual gold in 5k gold! You may also see other metals "upgraded" so perhaps titanium wedding rings will take off? Will silver start to become the only realistic choice metal for "everyday" items like chains? And will platinum make a resurgence?

With all that in mind...A word on other precious metals:

Silver - stayed static for a very very long time - Partly due to the thing you're holding in your hand! Silver was used in developing photos - now we all have digital cameras the demand dropped off a cliff. Recently the price has jolted back into an upward tick (in part due to other industrial uses) and I expect it could have a way to go. I think if I had £1000 to buy a silver bar or a gold bar at the moment, the gold might look more attractive and risky, good for a short term win but the silver might look more tempting as a longer term investment (caveat - none of this blog is investment advice, merely opinion). If you look at a graph showing the relative value of silver and gold over the years you'll see that the 2 metals have always been much closer together in value. Over the last 20 years or so silver has stayed put whilst gold has split away upwards. So you could say silver is "due".  But who knows!? I would have also said that 10 years ago and you'd have been better with your money in the bank! 

Platinum - looks very good value currently - on paper. If you're trying to buy it, eg at auction, you can expect to pay way more than the value of the metal - this usually means the market thinks its undervalued. Where we have to make jewellery for a customer, rings in particular we've stopped using 18ct white gold as a)it's so expensive and b) it doesn't do as good a job as platinum. You do need to use more platinum as it's denser but overall we think it's a better choice. As for an investment? It used to be worth more that 18ct gold per gram, now it's worth a lot less than 9ct! So perhaps it has potential but it depends a lot on industrial use and also of course, fashion - will people still want it in 10 years? Personally, I think so. 

Palladium - this was the daddy of them all for a while price wise but has now dropped below platinum (and well below 9ct gold). It's rarely seen and used these days. Again, unless some new industrial use comes along to affect the supply and demand? If there was more of it about then i'd say it will likely fill some of the 18ct white gold market (i don't know how much is un-mined, if lots then with some aggressive marketing from the jewellery industry it could become big again)

Be careful out there! Invest only what you can afford to lose and consider buying things for the enjoyment you'll get out of them - if you're making money, that's a bonus!