The price of gold has been rising steadily, with recent prices reaching near all-time highs of over $3,300 per ounce. This is not the first time gold has experienced a bull market, and investors are starting to take notice. In this article, we will explore the drivers of the gold price surge and why gold is an attractive investment option.
Supply and Demand: A Perfect Storm
The fundamental reason for the rise in gold prices is supply and demand. Central banks from developing markets have increased their gold reserves significantly since 2010, making them net buyers. The top buyers include Russia, China, Turkey, Poland, and India. Russia increased its reserves by 1,684mt to a total of 2,333mt, while China increased its reserves by 1,181mt to a total of 2,235mt.
| Country | Gold Reserves (mt) |
|---|---|
| Russia | 2,333 |
| China | 2,235 |
| Turkey | 2,000 |
| Poland | 1,500 |
| India | 1,400 |
The Role of BRICS+
The BRICS+ group, which includes Brazil, Russia, India, China, and South Africa, has been expanding its membership since 2009. The group has built a new payments system using proprietary cables, secure servers, and highly encrypted message traffic protocols, along with a blockchain-type ledger. Payments are made in local currencies, and the traditional answer to settling trade imbalances has been the US dollar. However, the BRICS+ group is moving towards using gold as their global currency.
Gold as the “Everything Hedge”
Gold is not just an inflation hedge; it’s a better model for investors, known as the “everything hedge.” The vectors of uncertainty are everywhere, including tariffs, tax policy, and the rise of China. Stocks and bonds can be volatile, but gold remains a safe haven asset. It’s the one asset that powers through all the uncertainties and offers investors peace of mind.
- Gold is an imperfect inflation hedge, but it’s a better model for investors.
- Gold remains a safe haven asset in times of uncertainty.
The Math Behind the Gold Frenzy
The psychology behind gold’s price surge involves anchoring, where investors treat each $1,000 per ounce gain as the same. However, the percentage gain associated with each dollar gain is less, making the increase from $1,000 to $2,000 per ounce a heavy lift. The increase from $9,000 to $10,000 per ounce is not much more than a good month. This math gives rise to a gold buying frenzy, which is not yet fully realized.
How to Invest in Gold
There are two main ways to invest in gold: paper gold and physical gold bullion. Paper gold refers to securities and futures linked to the price of gold, such as exchange-traded funds (GLD) or COMEX gold futures. Physical gold bullion is a better option, as it gives investors direct ownership of gold. American Gold Eagle coins from the US Mint are practical, while 1-kilo gold bars from a reputable refiner are suitable for larger amounts.
- Paper gold gives price exposure but not direct ownership of gold.
- Physical gold bullion offers direct ownership and potential gains.
Storing Your Gold
When storing your gold, it’s essential to use a reputable storage company or a home safe. Banks are the first place the government will lock down in a crisis, and your gold could be seized. Using a private storage company or a home safe ensures that your gold is secure.
Conclusion
The resurgence of gold is not a passing trend. The drivers of the gold price surge, including supply and demand, the role of BRICS+, and gold as the “everything hedge,” are all contributing to its growth. As an investor, it’s essential to consider physical gold bullion as a sound investment strategy. Don’t miss the opportunity to invest in gold; the gains are still to come.
