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Thursday, July 30, 2020

July 30, 2020
Photo by Michael Steinberg from Pexels

Gold hit a record high on Monday as increasing numbers of nervous investors sought a safe place to put their money.
Rising political tensions between the US and China joined the ever-present worries over the continuing coronavirus pandemic to boost the spot price to $1,944.92 an ounce.

Many investors shun gold as it does not pay dividends or earn interest, but its price tends to rise in troubled times,

Interest rates are currently near zero and dividend returns from companies are uncertain at best, with so many struggling.

So far this year, gold prices have risen 28%.

Gold standards: The basics of investing in the yellow metal
As well as lacking in returns, investing in gold brings costs.

Adrian Ash, director of research at precious metals trader BullionVault, says storage costs (with insurance included) are 0.12% of the size of your investment per year.

Each bar weighs 400 Troy ounces (12.5kg) and is currently worth £600,000 at today's prices, so that would cost about £60 per month. It is trading in these large bars that creates the "spot" price.

The bars are how the wholesale industrial and investment gold markets move metal around, and any other form of gold you buy - whether a bracelet or a coin or the microchips in your smartphone - starts out in this larger form, adding costs at every stage of manufacture.

However, Mr Ash says that if you fancy visiting your haul, you cannot. "It's hard to over-state the level of security at professional bullion vaults, and for the vast majority of people, being shown a shiny yellow brick wouldn't prove much anyway."

He says his customers can take their metal out from the vault if they wish. "We would arrange delivery, most usually in the form of smaller bars, although that necessarily triggers the extra manufacturing and shipping costs you otherwise avoid by owning wholesale bullion inside secure storage."

Unlike shares and bonds, investors in physical gold products do not get any return on their investment. There are no dividends or interest rates and no protection against inflation. Plus you pay to store it. The value simply rises and falls on investor demand.

A fall in the value of the dollar is another factor that boosts the price of gold, which is quoted in the US currency. It means that buyers using other currencies can, in fact, be paying the same for their gold, as they are able to buy more dollars for their money.

The dollar index - which measures its value against a range of currencies - has fallen to its lowest since September 2018 following increasing tensions between the US and China.

China took over the premises of the US consulate in the south western city of Chengdu. The move was in retaliation for the US closing down China's diplomatic base in Houston, Texas.

Later this week, the US central bank, meets to decide on monetary policy. Mihir Kapadia, head of Sun Global Investments, thinks that could also help boost the gold price further.

"With eyes on the upcoming Fed policy meeting later this week and more concerns over geopolitical tensions, further gains can be expected with these factors likely to weigh heavily on the stock markets for a few more weeks to come."

The price of fellow precious metal silver was also higher. It rose more than 6% to $24.36 per ounce, its highest since September 2013.

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