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Wednesday, March 18, 2020

UNTIL COVID-19 RUNS ITS COURSE INVESTORS ARE TURNING TO GOLD

UNTIL COVID-19 RUNS ITS COURSE INVESTORS ARE TURNING TO GOLD, BUT WHY IS THE PRICE GOING DOWN? Are Loan Notes better?

Over the past few days a number of people have been asking why the gold price has been dropping when it's supposedly a safe haven asset? 
 
Good question... and there’s 3 crucial factors I think you need to consider:
 
  • Gold is really two separate things – Physical Gold (Bullion) and Paper Gold (Gold Certificates, ETF’s, and other derivatives). The LBMA market price for Gold relates purely to Paper Gold trades (derivative markets) rather than to the actual supply or demand of the physical product. Those who have invested in Paper Gold also tend to be heavily exposed in the Stock and Bond markets, and, as we have seen record breaking drops in those markets over the past few days, investors have been left with little option but to liquidate their Gold positions to cover their losses. This explains why we have seen massive sell offs of gold positions resulting in a sharp price reduction on the LBMA.
 
  • The AMOUNT of price reduction. If I take the opening price of LBMA Gold,  the Dow Jones and the S&P 500 on Jan 2nd 2020 and then at closing on Friday 13th March, then the price change is Gold +2.3%, Dow Jones -20% and S&P -17%.  As you can, Gold is the only asset still retaining value.
 
  • As mentioned, the Gold price is NOT related to supply and demand to the point where the correlation between paper and physical is now breaking free. Some dealers are OUT of stock and refineries are running low. So no matter how much money you have, you can’t buy it! 
 
With almost all of the world now on lockdown for the foreseeable future and global stock and bond markets crippled by fear, we are certain to see a significant rise in gold prices over the coming days, weeks and months.

If you would like to find out more please email info@fngassociates.com

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