How to price Gold

By TanujPaulB | xpinvest.io | 3 Sep 2019


If you discuss investing in Gold with someone under the age of 30, they might make a confused face and say, ‘Isn’t that something my grandparents used to do?’ If that is the case, just show them this chart. It tracks the price of Gold starting from 2016. It might spike their interest, if only momentarily.

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One of the problems I have personally faced when looking at Gold was the accessibility; do I go through my bank’s brokerage? Why can’t I see it on my trading app? Do I use an ETF? Where do I even keep it? That, together with the tag that it got slapped on its back for being an investment that can be used as a safety net might have resulted in it losing some its appeal with traders. It is however, still a highly liquid commodity. With the world’s capital markets heading towards uncertainty, gold might continue the upward trajectory that it has recently set itself on. Conversely, if all the red flags turn out to be a false alarm, it could slide back down to previous levels. So what are the factors that we know will impact the price of Gold?

One of the biggest factors is its reputation as a safety net. Because of this, every time there is any sort of uncertainty in the debt or equity market people flock to gold as a way of preserving their wealth. Due to this the price of gold skyrockets and its tag as a ‘safety net’ becomes self fulfilling.

The self fulfilling demand for Gold also acts as a hedge against inflation. At points in time when we see a spike in the price of commodities, currencies would lose value. Investors would in such situations park their funds in commodities such as gold to preserve the value of their holdings. The demand for gold would thus spike and create a self fulfilling cycle.

Another factor is when governments change the interest rates, this occurs because of what can be described as the opportunity cost of holding gold. When the government increases the interest rate, they would attract more investment in government bonds and treasuries because of the higher returns on those instruments. In this scenario we would see a fall in demand for gold leading to a decline in its prices. In 2019 where President’s are shouting for a decrease in interest rates, it seems more likely that gold prices will continue to rise.

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One price factor that might not impact everyone is actually the Hindu festival of Diwali. Considered auspicious, the demand for Gold spikes up every year around the same time. If you’re a short term investor, you should probably check your calendar to see when it is.

Now, if you’re confused about whether to consider Gold or Bitcoin as a safe haven, what I can tell you out of personal experience is that you shouldn’t necessarily consider Bitcoin as a safe haven. Not saying that its value won’t go up in the long run, but its not a guarantee and what that time frame is I don’t know. Gold as we all know is a lot more battle tested than Bitcoin. But what if you don’t want to withdraw your BTC while still taking advantage of the Gold appreciation. Well using ‘XP Invest’ you can do just that.

On our platform you can trade the underlying price of gold and settle in Bitcoin, don’t worry about the exchange rate or conversion charges. Your Bitcoin will give you Buying power against which you trade. Then just withdraw your profits in Bitcoin again, simple.

 

This article was originally published on medium.com by the same author.

 

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Disclaimer

This material should not be the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions, and is not related to the provision of advisory services regarding investment, tax, legal, financial, accounting, consulting or any other related services, nor is a recommendation being provided to buy, sell or purchase any good or product.Any views expressed on XP Invest blog are the personal views of the authors. The information and data herein have been obtained from sources we believe to be reliable. Such information has not been verified and we make no representation or warranty as to its accuracy, completeness or correctness. Any opinions or estimates herein reflect the judgment of the authors of the report at the date of this communication and are subject to change at any time without notice. XP Invest will not be liable whatsoever for any direct or consequential loss arising from the use of this publication/communication or its contents.

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TanujPaulB
TanujPaulB

Business Lead & Product Manager for new cross-asset trading platform. I love Star Wars.


xpinvest.io
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XP Invest is a platform where traders can use their Bitcoin holdings to get exposure in traditional asset classes.

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