24 Aug Should we buy gold?
Should we buy gold?
The unstable financial situation world wide has many investors wondering about their money and what the future holds. Owning physical gold or silver is now becoming a topic of discussion as never before. In this article, I will touch on some of the most common, and not so common facts about silver and gold.
The idea that gold is a safe haven has been around for many years. There certainly is some truth to this statement as we see investors move into gold every time there is a new crisis somewhere only to move back out once the issues are solved. We then get the subsequent drop in the gold price off course. Gold does not have a wide industrial use. It does not pay interest. It is quite volatile in price. So, why should we own gold?
Let us for the sake of this article assume that gold is just a commodity like coal or oil or soya beans. That means that the very simple equation of supply and demand comes into play. Gold demand for H1 2016 was 2,335t, the second highest on record. Huge ETF inflows for H1 was 579t. H1 gold price performance was the strongest in 35 years. The investment demand for gold in H1 was 1,063t, the highest demand ever recorded. The supply side only increased by about 10%, the slowest in 8 years. The production cost of gold is between 1200 and 1300 dollars US. This means that you can buy gold today at just about cost price. With all the gold mines closing down around the world the supply side is going to get squeezed even more. ETF demand for H1 2016 was 579t, almost equal to the total ETF demand from 2009.
All the above pertains to silver as well. Consider this simple calculation. If we take the current gold and silver price, and we assume that both metals will go to their all time highs, silver will appreciate twice as much as gold percentage wise.
So, should we buy gold or silver?