It is estimated that humanity began to know and value gold approximately 6,000 years ago. The Romans perfected the mining techniques that allowed the massive extraction of gold from the mines that populated the Empire.
According to the calculations of the World Gold Council , since the beginning of history some 187,200 tons of gold have been extracted , practically all of which is still among us, in different forms, since gold is indestructible.
This amount may seem huge, but if it were melted into a single block, it would make a cube 21 meters on each side . For comparison purposes, a tennis court is 23 meters long.
Due to its enormous ductility and malleability, all that gold could be turned into a fine thread just 5 microns thick , long enough to go around the world 11.2 million times .
Annual world production was 3,503 tons in 2018, 1.8% more than the previous year. For 2019 , the figure is expected to reach its all-time high again, for the tenth consecutive year : 3,516 tons .
To this amount, which is what is extracted from the mines, we must add that which comes from recycling old jewels, coins or ingots, which reaches the refineries as an additional supply. In 2018, a total of 1,168 tons of gold were recycled , bringing last year’s total supply to 4,671 tons .
Russia was the world’s third largest producer, with 297 tonnes . The country also has some of the world’s largest mines in its vast territory, as well as being the largest producer of palladium and one of the largest producers of nickel and platinum.
In fourth place was the United States, with 222 tons . The state of Nevada is the largest gold producer within the US territory. By itself, this state would be among the countries with the highest production.
The fifth place in the classification of the largest producers of 2018 was occupied by Canada, with 189 tons . Canadian mining companies are among the world’s leading gold miners, with holdings on five continents.
It is difficult for a person or company whose work is related to investment precious metals not to receive a professional or personal query about the possible sale value that “grandma’s jewelry” may have. Some pieces that the interested party has treasured with care for decades with the aim of being able to get a return on them.
“How much do you think you can give me for this bracelet and these earrings that belonged to my great-grandmother?”
Surely anyone who has some relationship with the gold market has heard this question on more than one occasion, even though their activity, like ours, has more to do with investment gold than with pawn shops, popularly known as ‘I buy gold’ .
Usually, the answer that the professionals in the field, the aforementioned ‘I buy gold’, usually give to the potential client, they are not usually satisfied. “It’s that they are made of gold” , he will answer indignantly. “Yes, but 9 carats; that is hardly worth anything” , the potential buyer will specify.
That is precisely the key to the matter: the carats. In them lies the difference between valuable investment gold and not so valuable gold used in jewelry.
Jewelry, the world’s largest consumer of gold
According to data from the Gold Demand Trends 2019 report , from the World Gold Council , the demand for gold jewelry was 2,107 tons in 2019, 6% less than the 2,240.2 tons in 2018.
The jewelry sector is, together with the investment sector, the one that consumes the largest amount of gold extracted from the mines. Although its percentage has decreased in recent decades, due to the strength of sectors such as technology, the jewelry sector still accounts for more than 50% of the total demand for gold .
By region, China and India, the two largest global consumers of gold, are also those who demand the most metal for the manufacture of jewelry
Investment gold has characteristics of purity and shape that are defined, in the case of the European Union, by tax regulations, which establish that only bars and coins that meet certain conditions will be considered as such and, therefore, will be exempt from value added tax .
But the world does not end in the European Union, nor in Western countries. In Asia, gold has a special relevance. And in countries like India or China, jewelry is also considered, in a certain way, as investment gold. In India , for example, gold jewelry is the patrimony of women who marry. Hence, in the weddings that are celebrated in this country, the brides carry a large amount of gold on them.
In addition, in the rural areas of the country, which are poorly banked and dependent on agriculture, the inhabitants allocate the surplus of the crops, in good years, to acquire pieces of gold, usually jewelry, which constitute their insurance against any accident or medical need.
Hence, one of the factors that influences the price of gold in the country is the level of rainfall that is recorded in the monsoon season. The higher it is, the more abundant the harvests will be and, therefore, the higher the sales expectations of the jewelery merchants.
The same thing happens in China : in celebrations like the New Year, it is traditional to give jewelry and pieces of gold, a symbol that attracts good luck.
If this is the case in these countries, why is it that the Western world does not usually invest in jewelry?
The explanation is in the carats . These are a unit of measurement for the purity of metals (not to be confused with the carats of precious stones, which are a unit of weight).
Gold is one of the most ductile and malleable metals that exist. This means that its low hardness allows it to take multiple forms, and be stretched into a thread thinner than a human hair, or crushed into a sheet of microns thick.
This quality, which has allowed it to be easily worked by artisans for many centuries, is also one of its weaknesses. Therefore, to be used in jewelry, gold has to be alloyed with other metals, which give it greater hardness and resistance to wear.
What does this mean?
That the jewels, especially those that were made years ago, usually have a very low caratage (18, at most), so the amount of gold they contain is lower than the client imagines.
To this we must add that the value of the pieces of jewelry lies not only in the amount of precious metal they contain, but also in other variables such as design, the difficulty of craftsmanship, etc.
In short, that a jewel that cost a fortune at the time and that the heir hoards with the hope of getting a good return in times of lean times, ends up being priced very low , because it has less gold than was supposed.…
Investment or bullion gold coins , a category that was inaugurated by the Krugerrand in 1967 , are a simple option for small investors in gold, who can accumulate pieces of one ounce or less, with the guarantee of mint houses of prestige and enormous liquidity.
These coins are not usually presented in blister packs , but are sold loose or in tubes of 20 or more units, available to investors who want large quantities.
It is frequent, especially in countries such as the United States, that certain issues of these coins, in which certain special conditions apply are embalmed and labeled by authorized companies that are in charge of the certification of the state of the coins with a view to their subsequent commercialization in the collectors’ market.
This happens, for example, with the special issues of the American Eagle in silver in a proof version, or in metals such as platinum or palladium. They are coins that, although investment, arouse some interest in the collectors’ market due to their special conditions. Hence the interest in certifying their condition, to put them on the collection market.
In the case of gold bars, we have also seen that there are various formats , depending on their weight. The largest are the so-called banked ingots, weighing 400 troy ounces (12.44 Kg) , which are the ones that central banks usually house in their vaults.
These ingots are made by melting the gold in molds and subsequently engraving the required data on its surface: maker’s mark, weight, purity, numbering and “Good Delivery” stamp .
For lower grammage ingots, especially the smallest ones (up to one gram in weight), a technique similar to coin minting is used: a die stamps the pieces on a gold sheet that passes under the machine.
These bars, the manufacture of which has proliferated in recent years due to investor interest in physical gold, are the ones that are usually ‘packaged’ in a heat-sealed blister .
This blister pack, in addition to protecting the ingot from stains or scratches (it must be remembered that gold, in its purest form, is a soft and malleable metal) acts as a certificate of guarantee , since it includes the signature of the refinery or mint, the number, the watermark and the barcode that identifies the piece.
The only disadvantage of such packaging is that the owner of the bar will not be able to touch the gold. But in exchange for not enjoying that feeling, the advantages offered by this presentation of the ingots are very important: it identifies the ingot with its individual manufacturing number , the manufacturer with its brand, and includes additional security measures such as watermarks and others. technological innovations.
In this way, if the client, when the time comes, decides to commission the company to sell the gold on his behalf, it can ensure that the ingot it sells is the one that the client bought at the time and not another.
If the client decides to open the blister pack at his own risk and expense to enjoy the touch of gold, he must know that:
• Once open, it cannot be closed again . In fact, some refineries include formulas to bring up a message indicating that the plastic has been opened.
• The open blister implies that the bar is no longer attached to its guarantee certificate , so the doubts about its authenticity are greater than if it were correctly packaged.
• The refinery or mint that manufactured it may reject its repurchase , because it may have been tampered with.
• Its sale on the secondary market is much more complicated , since it would have to be made to other merchants who are willing to buy it, possibly for a lower price than it would be obtained if it were in its corresponding blister pack and, therefore, attached to its certificate of authenticity.
In fact, the very refineries that devised this system are launching new products that highlight the importance of keeping the ingots in their packaging.
The problem of counterfeits
The blister pack is nothing more than an additional security measure to make it difficult for the bullion to be counterfeited . A phenomenon that has increased exponentially with the rise in the price of gold in recent years, and against which refineries and mints are taking extreme security measures.
In this fight against counterfeiting, blister packs are one more tool that, although they cannot prevent counterfeiting 100%, they can serve to hinder the work of criminals.
Therefore, if you are lucky enough to be an investor in physical gold and have bars at home, know that they are best kept in their blister packs .…
International geopolitical instability , with points of conflict such as the Hong Kong protests, the trade war between China and the United States, the intensification of tensions with Iran, the coronavirus epidemic has skyrocketed in recent months, causing a rise in the gold price. In this post we are going to explain the historical relationship that exists between crises and the price of metal.
Gold is currently experiencing its most positive moments since 2013, with a price that is getting closer and closer to $1,600 an ounce . After the rise registered in 2019 (more than 18% in dollars), 2020 has maintained this trend, thanks to the boost provided by the geopolitical factors already mentioned.
The coronavirus epidemic in China has been the latest factor to be added. The implications that this pandemic could have on the global economy, about which there are already enough doubts, could be decisive for the triggering of a new crisis.
These crises are very damaging to the economy, as recessions (negative economic growth for at least two consecutive months) that are accompanied by financial crises are at least 50% deeper .
An example is the crisis suffered by the Japanese economy after the bursting of the real estate and financial bubble in 1989, which plunged the country into a recession for a decade.
The same happened with the Great Depression after the stock market crash of 1929 in the United States, aggravated by the panic of bank customers, or the Great Recession , after the burst of the ‘subprime’ mortgage bubble , which became an international banking crisis and a sovereign debt crisis.
Gold and crisis
Precisely at the times when these crises break out, causing investor confidence in the financial system to plummet, is when gold shines its brightest .
As can be seen in the attached graph, during the main crises that have taken place during the last 30 years of the 20th century and the first 15 of the 21st century, the price of gold has experienced significant increases .
This was the case during the Latin American debt crisis of 1982 , when the countries of this continent reached a point where their external debt exceeded their purchasing power and they were unable to repay the loans received from abroad for their industrialization.
The price of gold rose from less than $300 to more than $500 an ounce in just a few months.
The same thing happened in the aforementioned crisis in Japan, at the beginning of the 90s; during the 1997 Asian financial crisis; after the burst of the ‘dotcom’ bubble in 2000; or after the bankruptcy of Lehman Brothers in 2008.
As they point out in the study, the best years for gold tend to be those immediately after the crisis , in which the lack of confidence in other assets and the urgent need for liquidity causes an increase in demand for the metal.
Gold as defense and diversification
For these reasons, the main fund managers recommend to their clients, even the most risk-addicted, a certain positioning of gold in their investment portfolios so that, when a crisis comes, the metal plays its protective and diversifying role the most prudent investors or simple savers, acquiring physical gold with the surplus of their savings is always a good practice, giving them the security that even in the most difficult economic environments their wealth will remain intact.…
ETFs (acronym for Exchange -Traded Funds , listed investment funds), an investment product introduced a few years ago, which allows investor exposure to gold, but without the need to acquire the metal.
A gold ETF is an exchange-traded fund whose price is determined by the evolution of the gold price , just as there are other ETFs whose prices are linked to the evolution of certain stock market indices.
In Europe, differences in legislation with respect to the United States determines that these products are called ETC (Exchange-Traded Commodities , something like listed raw materials).
The volume of gold that these funds had in the month of September was 2,855 tons , a figure that represents the historical maximum, above the 2,841 tons of December 2012 .
It is important to clarify that investing in these gold ETFs, through the purchase of a share, does not imply ownership of this gold , but only a right over it: the investor can request the delivery of the physical gold that corresponds to him , in proportion to its participation, but it is the fund that decides whether to deliver it.
Most likely this is not the case and the applicant will be returned the money equivalent to that share in gold, since the participants in an ETF do not have the gold assigned (that is, reserved in their name, with the numbers of the corresponding ingots).
In general, these funds have an insufficient amount of physical gold to support all the shares sold , just as the banks do not have sufficient funds on hand to return all the deposits to the clients if they agree to claim them from the time.
For this reason, it is often referred to as the “bubble” of gold ETFs.
They are another indirect way of investing in gold without having to purchase physical gold. These are funds that invest capital in companies engaged in the gold business . In this way, its participants can gain exposure to the metal without having to acquire it or buy shares in a mining company.
The profitability of these funds obviously depends on the evolution of the price of gold, which affects all the companies that work with this metal. However, it should be noted that investing in this type of fund is not the same as investing in gold since, as with ETFs, it does not grant ownership titles to gold .
In addition, the fact that they are investment funds cannot be ignored, with high profitability but also a high level of risk , at least much higher than that involved in a simple investment in physical gold.
At a more advanced investor level there are other investment products referenced to gold such as certificates and warrants.
The certificates are listed investment products that replicate the evolution of gold and that do not have an expiration date and the liquidity that allows their immediate placing on the market.
However, investors in gold certificates have to bear an annual cost, as a management fee, which usually amounts to 1.75% of the value of the certificate.
As for warrants, they are listed products that grant the theoretical right to buy or sell an asset , in this case gold, at a fixed price and up to a certain date.
In general, they function as purchase rights, known as calls, or sales rights, put, on gold titles, which are established at a price, called strike, and at a future expiration date, which cannot be less than three months. Its operation is similar to that of a bet on the future evolution of the asset .
This type of product carries a high level of risk, so they are only suitable for very experienced investors with a high tolerance for volatility and the ability to take losses. That is, the complete opposite of physical gold, whose objective is the protection of heritage.
Gold futures are contracts to negotiate with the metal under established conditions of quantities and prices, which are set more than three months in advance . Hence the name futures.
The transaction, that is, the exchange of gold for money, takes place on the so-called settlement date. During the time that the postponement lasts, traders take the opportunity to speculate and carry out operations of greater volume, with greater risks, to obtain greater benefits, with the margin of maneuver that allows them the fact of having at least three months to date in which the operation is executed.
To guarantee that the operation is carried out and neither party backs out due to a rise or fall in the price of gold, there is a guarantee called margin , which is a deposit made in an independent financial institution and whose value It is usually between 2 and 20% of the value of the operation .
To operate with this type of product, it is necessary to have specialized and qualified agents to operate in futures markets, so there is a significant extra cost for investors. In recent years, the development of technologies such as the blockchain has allowed the appearance of new formulas to invest in gold in an easy and accessible way.
Broadly speaking, the companies that have put these investment mechanisms on the market allow clients to invest in precious metal from very small amounts and have an account with their balance in gold , which they can manage from their mobile phone, buying, selling or exchanging grams of gold for money or even for other products.
It would be a technological evolution of the concept of using gold as money, with the security that blockchain technology allows.
These new investment formulas are becoming very popular in countries closely linked to gold, such as India. In this country there are several companies competing for a market of millions of potential investors, who regularly acquire various amounts of gold as an investment.
However, this novel formula also suffers from the same problems as other versions of paper gold: investors do not get to get their hands on the gold and, in the event of an emergency situation, they cannot dispose of the metal to meet their needs, since everything is based on digital transactions.
Finally, investing in shares of mining companies is a form of indirect investment in gold . Investors benefit from good times in the metal market or the discovery of new deposits.
However, they are also exposed to external circumstances that may affect the price of mining companies, such as accidents, labor disputes, confrontation with governments over the terms of concessions, tightening of environmental regulations.
In short, all these investment options use gold as a more or less close underlying, but do not give the investor ownership of the physical metal, which is the best way to enjoy its main attributes, such as its ability to maintain value, preserve purchasing power or serve as a refuge in times of crisis .