Every investment or asset class has buyers or critics. When it comes to precious metals, the mouths that speak are plenty, and the hands that keep are few. That’s why it pays off to start investing as soon as possible and reject some popular myths about the entire niche.
Most of the criticism that’s used nowadays is either ill-founded or simply popular propaganda by people who want to enter speculative markets or got lucky. There’s a high chance that you’ve heard some of the standard criticisms, but here are some of the myths along with the realities of the world of precious metals. Follow this page to read more https://www.moneycontrol.com/news/business/gold-jewellery-retailers-revenue-may-rise-12-15-in-fy23-crisil-8295931.html.
Gold Is a Bad Asset Because It Doesn’t Pay Interest
This is the most common argument against gold that you’re going to hear. The real estate pays rent, stocks pay dividends, and gold just stays there and does nothing. Well, that’s where the value comes from. Let’s say that gold bullion did pay interest.
Then, the performance and the price of the asset will depend on something else, like an institution or an individual. Every paper asset depends on debtors and creditors when it’s time to profit. This includes stocks, money market accounts, bonds, and bank-certified deposits.
A stock is worthless if the company that issued it goes out of business. Gold is valuable no matter what. Additionally, paper assets are directly affected whenever currency depreciation happens. This means that in times of inflation or deflation, they could become worthless. Precious metals are individual investments that are on the other end of the spectrum when it comes to dealing with the government, individuals, or institutions.
That’s what constitutes the greatest strength of precious metals overall. Even though they don’t give out dividends, interest, or rent, they’re seeking price levels that serve as countermeasures to uncertainties, currency inflations, and other financial drawbacks that other asset classes can’t provide. Click here to read more.
Stocks Will Always Outperform Gold
Anyone can select a period where stocks were hitting bull runs and claim that there’s no reason to own gold. However, it’s better to look at the bigger picture. Whenever stocks were hitting all-time highs, gold was sitting pretty idly.
Whenever stocks were hitting their all-time lows, gold was rallying and hitting all-time highs. The price of gold is inverse to the state of the dollar and paper assets. In stable economic times, gold will just stay there and sit peacefully. However, when things start moving, and no one knows which direction the market is going to take, everyone jumps at silver and gold.
Here are a few interesting statistics. From the 1970s to 2010, gold has risen 4300 percent while stocks have only gone up 1500 percent. That’s a total outperformance. Even if you looked at a close period between 2008 and 2010 when the crash happened, gold rose 30 percent while the Dow got only 15 percent.
Bitcoin is better than gold
This debate is booming right now. Cryptocurrencies are definitely going to be a part of the future, but they still don’t have what it takes to remove precious metals from the throne. The question is, will they ever be able to compete with gold and silver? Here are a few counterarguments to the idea that Bitcoin is going to overtake gold.
First of all, the world is still in the early adoption stage when it comes to cryptocurrencies. The barrier to entry is extremely high since most of the world still isn’t digitalized. This means that there are at least 50 years before Bitcoin can make a name for itself, and we’re not talking about the thousands of other crypto coins that exist.
Furthermore, there have been plenty of scams, rug pulls, and deceptions in that niche, which creates a bad image for cryptocurrencies overall. You can visit CaymanFinancial Review for more info. Next comes the recognizability. When you see a gold piece, you instantly know what it is. The same thing is true about people in Europe, Asia, Africa, or Australia. On the other hand, how can you show another human being a Bitcoin?
There are plenty of ways in which you can lie about it or create software that mimics it. To confirm whether bullion is real, you measure weight and see if it falls in the standards form where it was issued. It’s going to be extremely difficult to expect that the entire world will know what the blockchain is in the next ten to twenty years.
Governments control the price of gold
Because central banks have a lot of gold in their repositories, people think that they can control the price of it. There have been situations where they’ve tried, but those attempts have always failed. The free market is the mechanism and the instrument that determines the price of every asset.
The factors that influence the free market are called supply and demand. When there are a lot of people that want one thing, its price goes up. When no one wants a specific product, the price will go down. It’s that simple.
Whenever the government pursued activities to hold gold down, it always ended up being futile because the price moved in the opposite direction. Manipulations with the dollar can be made, but that can’t be applied to gold. Precious metals are the masters of all currencies and the slaves of none.
Gold is a bubble that should be avoided
Here’s an interesting example that looks at the historic climb of gold and whether it’s overvalued at the moment. In the 1930s, the king of Saudi Arabia sold concessions to a few companies. At that time, he could accept payments in either paper currencies or gold.
He chose the latter and received 35 000 gold coins in the form of British Sovereigns. When he completed the deal, each coin was worth a bit more than 8 dollars, which made his profit close to 300 000 dollars at that time. During that time, the price of gold was quite high for the standard of living, and a barrel cost 85 cents.
With a single gold coin, he could buy a bit less than 10 barrels of oil. Now, when we fast forward to today, we can see that his investment in gold is worth 12 million dollars. That’s a pretty good price increase. If he decided to keep his dollars, they would still be worth the same as then, but their buying power would have depreciated.
Now, a price of a single barrel of oil is 115 dollars. This means that you can buy three and a half barrels of it compared to the time when he made the exchange. Compared to a hundred years ago, we can definitely agree that oil is more important now than ever. In order to have the same buying power as then, a single ounce needs to be priced at 5000 dollars. This means that the bull run of precious metals still hasn’t started.
Precious metals are speculative investments
Quite the contrary, keeping cash is a speculative investment. You can buy more goods and services now with an ounce of gold compared to a hundred years ago. That’s not true about the dollar. Even though there has been volatility in the precious metals markets, there were major political forces at play.
Governments and central banks are still trying to suppress prices, which is why they’re selling their reserves. Once they run out, gold is going to become a free-floating asset on the free market, which will spike the price even more.
Finally, countries like Russia and China have been stockpiling reserves for the past decade, and they don’t plan on selling anything. When the largest competing economies are making a move, it’s wise to take notice of their actions. As an individual investor, it’s even wiser to copy them.