EDITOR: | August 29th, 2013 | 6 Comments

Gold: certainty in an uncertain market?

| August 29, 2013 | 6 Comments
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NY Federal Reserve GoldIs gold really a hedge against inflation? Some experts say the monetary role of gold is becoming more and more important and that gold is being regarded as a currency again, not strictly as a commodity.

Investors around the world recognize gold as one of the most reliable hedges against inflation. The value of gold – in terms of the real goods and services it can buy – has remained largely stable for decades, if not centuries. In 1900, gold was trading at just slightly over USD$20 per ounce. (If I only had a time machine!) Presently the spot price of the frighteningly gorgeous metal is just shy of USD$1,420 per ounce. Prices in 2012 consistently remained well over USD$1,500 per ounce and, despite gold’s decline earlier this year, the precious metal has held its value better than any other currency. That’s a fact. Gold’s real price has endured a century characterized by sweeping change, inflation and repeated geopolitical turmoil. Despite all challenges, gold has retained its purchasing power. In contrast, the real value of most currencies has generally declined.

A growing body of research supports gold’s reputation as a protector of wealth against the ravages and perils of inflation. Numerous economists have demonstrated that, over the long term, through both inflationary and deflationary periods, gold has consistently maintained its purchasing capacity. Of course, experience has shown that gold can deviate from its long-run inflation-hedge price.

Ty Facts:

  • The total amount of gold ever mined is over 175,000 tonnes (or enough to fill 70 tractor trailers), which is valued at over $9 trillion.
  • Gold is so rare that the world pours more steel in an hour than it has poured gold since the beginning of recorded history.
  • Due to its rarity and value, almost all of the gold ever discovered is still in circulation. It is estimated that 80% of the world’s gold is still in the ground.
  • Amid recession fears in March 2008, the spot price for gold topped $1,000 an ounce for the first time in history.
  • In 2005, Rick Munarriz queried whether Google or gold was a better investment when both seem to have equal value on the stock market. By the end of 2008, Google closed at just over $307 per share… while gold closed the year at $866 an ounce.
  • The Federal Reserve Bank in New York holds – it does not actually own – the world’s largest accumulation of monetary gold. The vault is 25 metres (80 feet) beneath street level and holds over 6,700 tonnes of gold bullion (worth approximately $370 billion). The bedrock of Manhattan is strong enough to support the weight of the vault and the gold held inside.
  • The RBC Royal Bank Plaza Buildings in Toronto (where I used to work as a Risk Control and Compliance Officer in the Treasury Department) coated over 14,000 windows with a thin layer of gold. The coating reflects heat radiation and helps keep people from seeing how much money the bank actually makes. Seriously, the gold helps keep the building cool in the summer (not true in my experience) and warm in the winter. The windows are coated with approximately 70kgs of gold, worth $3.7 million
  • 100% pure gold is so soft it can be molded with bear (or human) hands and is so pliable, it can be made in to sewing thread. A mere 1 ounce of gold can be made to stretch of 50 miles.
  • Gold has been found on every continent (the most gold has been found in the US, Canada, South Africa, Russia and Chile).
  • The chemical symbol for gold is Au, from the Latin word aurum meaning “shining dawn” and from Aurora, the Roman goddess of the dawn. In 50BC, Romans began issuing gold coins called the Aureus and the smaller Solidus.
  • The disposition for how the world uses gold: 50% jewelry, 40% investments, and 10% industrial applications.
  • Pure gold is so soft that it must be alloyed with other metals. Gold purity is measured in karats. “Solid gold” has a minimum weight of 10 karats. “Pure gold” must be 24 karats (though it may contain minute amounts of copper).
  • In 1912, International Olympic Committee gold medals were made entirely from gold and weighed 250 grams. At 24-karat purity, those medals would contain $13,000 worth of gold. Currently, Olympic gold medals are covered in just 6 grams of gold.
  • No one knows the true origin of gold. Many theories point to gold’s arrival on Earth via an asteroid. Other hypothesize the element is a remnant from a rare neutron-rich explosion from the collision of neutron stars. If you have any theories, please share below…

There are two specific reasons why the precious metal still remains a good investment — the uncertainty in the global market and the other, a perception of global economy slowing down, making investors to look for safe products to place their funds. Many investors around the world regard gold and other precious metals as wealth protection in the 21st century; strategic investments that have true intrinsic value (gold will never become worthless overnight like some stocks, bonds, currencies, etc.) and will always be valuable.


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Comments

  • J. Best

    I am a bit of a gold bug Ty and truly enjoyed this article. Loved the Ty facts! Can’t help but wonder does the value of The RBC Royal Bank Plaza Buildings in Toronto go up and down with the price of gold?

    August 29, 2013 - 11:41 AM

    • Ty Dinwoodie

      Lol… thank you. To answer your question, I think the impact of gold’s price on the actual value of the RBC world headquarters is de minimis (it would be pretty difficult to extract the actual gold from the glass). As I understand it, RBC’s world headquarters – the buildings themselves – are owned by Oxford Properties… so they’d be the ones melting away, so to speak. Gold was much, much, much cheaper when those towers were designed and built.

      August 29, 2013 - 1:14 PM

  • Tracy Weslosky

    Amusing question J. Best…Ty?

    Spoke with David Morgan yesterday and he sees a strong market this Fall in Gold/Silver and said +$1550 gold (Au) and +$26 silver (Ag)….interview should be up in next 24hrs.

    August 29, 2013 - 12:15 PM

  • J. Best

    Thanks for taking the time to respond to my humorous remark and thanks Tracy for this update from David Morgan! Great news.

    August 29, 2013 - 1:42 PM

  • Nevada George

    Sit back and relax… think long term… not immediate gains.
    Do not get shaken out of the Gold market.
    There “are” those trying to get you to sell at depressed prices.
    Todays depressed prices were not depressed prices 10 years ago.
    There are lots of “Gold Experts” with valid arguments sitting
    on different sides of the fence.
    However, Gold has historically been perceived as having
    value by many different cultures for many centuries.
    That is what I place my investment decision on.

    I was mining Gold with my father when it was $35 an ounce.
    I am hanging on to my gold forever… there will be peaks and
    valleys…but there will also be multi year corrections and gains.
    Physical gold is a great gift for you grandkids.

    August 30, 2013 - 3:36 PM

    • Ty Dinwoodie

      Lol… you are so right about the “depressed” prices of today not being (anywhere near) the depressed prices of 10 years ago. I remember friends racing to buy physical gold – myself included – in early 2002 for under USD$280 an ounce, never expecting it to hit anywhere near $1,000 an ounce!

      September 2, 2013 - 1:30 PM

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