While the opportunities provided by gold investing are high; ignorance surrounding the area is also high. It is rare indeed to find anyone in the mainstream that would even consider gold as an investment; or recommend it to their clients.
The first step in a gold investing strategy is getting a grip on its relationship with the wider economy, inflation and the money supply. After that, you will need to find a way of valuing gold. How else can you determine whether it’s cheap or expensive, but by considering its price relative to other investments?
The decision to buy gold is only the start. As with any investment, the vehicle in which you decide to own the underlying asset is going to play a major role in returns, as discussed below.
Short-term movements in price suggest gold is a risk-off asset. The gold correlation with risk-on assets like oil and equities should be negative in this scenario. However, the evidence suggests that gold behaves like a commodity in the long-run. Gold has a positive correlation to oil and a negative correlation to stocks. The magnitude of [...]
What is the relationship between gold and money supply? Many believe that changes in the gold price are simply the product of money supply changes. More money relative to a fixed supply of gold leads to a higher gold price and vice-versa. In reality, the relationship is not quite so simple. Gold is not driven [...]
It is widely believed that the relationship between gold and inflation is a strong one. But when one looks at the relationship between gold and CPI, it can be demonstrated that there is no enduring relationship. So what is the explanation for this finding? I will demonstrate that the CPI does not act as a [...]
Is gold a good investment? Well, let’s be clear from the outset: I don’t regard gold as a long-term investment at all. However, gold will preserve the purchasing power of your wealth through time. The performance of the economy is the key factor when assessing the attractiveness of gold verses traditional investments. Traditional investments are [...]