Trade secrets: The future of gold
Every day, people ask me, “What do you think of the price of gold? Is it going to go higher?” After spending decades running a trading desk, I always give the same answer: “Would I be working here if I knew the answer?” The fact of the matter is we don’t really know where the price of gold is going on a daily basis. There are far too many variables in a trading day or week that can affect its price. Gold is simply another item in financial trading, which represents a global business pushing through trillions of dollars each day. Gold as an investmentPrecious metals represent a tiny fraction of daily trading activity. On an average day, about 250,000 contracts of gold trade on the Comex, which represents nearly 709 million g (25 million oz), a nominal value of $41 billion. A big number to be sure, but in relation to overall activity, it’s a minor player. Gold represents a special place in the realm of tangible goods, especially jewellery. An investment in a fine piece of jewellery is not only an esthetic purchase, but also a de facto investment in the precious metal. However, there are many more products competing in that space for those investment dollars. The proportion of jewellery sales as a gold investment has been declining steadily over recent years. This author suspects this trend will continue for the simple reason the high-unit cost of gold makes it harder for the average person to buy a substantial piece without straining their finances. There has also been a steady rise in the number of silver goods to help offset higher gold prices. Silver jewellery is more accessible to a wider swath of buyers. Keeping stockThe easiest strategy to protect yourself against an adverse price drop in gold and silver is to hedge your prices when purchasing inventory. If you have a commodity trading account with a brokerage company, you can sell a gold futures contract, or 2835 g (100 oz). Typically, you have a cost for the gold component of your inventory when you buy it from a supplier. When the price rises, you have nothing to worry about. Since the 2011 high of $1900, however, we have seen the price drop to a low of $1060. In a falling market without any price hedges in place, substantial losses on inventory can happen. By hedging your gold price when you buy goods, you remove the risk of a drop in the intrinsic gold value of your inventory. The purpose of a hedge is to maintain your profit margin regardless of the value of gold. If the price drops, your short contract makes money, which offsets the loss on the gold price of your inventory. If the price goes higher, your inventory rises in value, but your hedge loses. If you can manage your inventory by ordering in 2835-g (100-oz) increments, you can always lock in the effective price of the gold component in your inventory. The labour charge has no intrinsic hedge that can be offset with a financial product. This has to be incorporated into your business plan when pricing jewellery. Gold dealers can help with excess inventory you may wish to scrap. Many jewellers have a certain level of physical inventory matching their specific size and operational needs. However, when your inventory grows too large, or you wish to purchase new material, or you simply have to pay bills, selling inventory is an obvious way to mitigate your financial exposure and raise funds. Most dealers will give you the opportunity to lock in a price and deliver material to be scrapped. The process is fairly straight forward. You deliver material, it gets melted and analyzed, and you are then paid for the gold content. If you are registered with the Canadian Revenue Agency (CRA), then you can also file a claim for a refund on the HST you initially paid when you bought the inventory. Article courtesy of Dino Vannicola
Where Does the Gold Go?
A few years ago, CNBC commentator Jim Leventhal made a pretty astounding comment. When asked about gold, he said he had no interest in it because gold has no uses as a metal. This is a pretty absurd statement. Gold has multiple uses. And it would probably have even more if it wasn’t so rare and expensive. In 2021, gold demand came in at 4,666 tons. Where did all of that gold go? More than half of the demand for gold is for the production of jewellery. In 2021, jewellery makers used 2,221 tons of gold. The next largest source of gold demand stems from its role as money. Gold bars and gold coins accounted for 1,180 tons of metal in 2021. ETF holdings fell by 173 tons last year, bringing total investment demand down to 1,007 tons. Central banks globally bought on net 463 tons of gold in 2021. The smallest demand category for gold is industry and technology. It accounts for about 8% of gold demand. But demand for gold in tech is growing rapidly. Looking at the bigger picture, the total above-ground stock of gold is estimated to be 205,238 tons. The World Gold Council broke down global gold holdings in the following chart. Article courtesy of Schiff Gold
Coins and coin jewellery: their valuation and how to identify counterfeits
VALUE FACTORS It is important to note that age alone is not an indication of coin value. Three factors, rarity, demand and condition combine to give a coin its value. Rarity is the most important factor. This is determined by the number originally minted and how many coins survived. Without demand for the coin, rarity alone is not enough to ensure a premium price. The condition of the coins refers to its state of preservation. Those with shiny surfaces and no sign of wear are the most sought-after. Coins and commemorative medallions incorporated in jewellery are normally valued at 3-4% above their metal content. DESCRIPTION AND VALUATION Identify country of origin, the metal content, denomination, and date. Note the weight and diameter of the coin, if possible . Note the condition of the coins as follows: Fair – design and lettering can just be identified.Good – design and lettering are clear.Fine – a circulated coin with little wear.Uncirculated – no wear and tear visible, tarnish may be present on older coins.Proof – coins with a mirror-like surface, sometimes combined with sand-blasted or matte surfaces, specially struck for collectors. Determine whether the coin is authentic or counterfeit, legal tender or a commemorative medallion. If mounted in jewellery, describe and value as if normal jewellery. Rare coins of numismatic value are rarely found in jewellery. Once a coin is mounted in jewellery, it loses some value due to its exposure to damage. Some may even be soldered onto a frame. Never clean or polish a coin or rub it against a touchstone to determine its metal content. Although few jewellers are experts on world coin values, our modern information systems provided instant access to such values. You can current values for Krugerrands from the daily newspaper, while local and international coin dealers provide buy-and-sell price lists. Silver coins are normally sold at the silver scrap price, except for some rare issues. EXAMPLES OF RARE SOUTH AFRICAN COINS Year Face Value Approx. Trade Value 1931 Three pence (tiekie) R2 000 – R20 000 1932 Two shillings six pence R1 000 1933 Two shillings R1 000 1939 One shilling R5 000 1939 Six pence R5 000 1965 One cent (Afrikaans issue) R5 000 1965 One cent (English issue) R500 – R1 500 1965 One cent (English issue) R30 1965 Fifty cents (English issue) R10 000 – R15 000 1966 One rand (Afrikaans issue) R1 000 – R1 500 1989 Five cents R30 IDENTIFYING COUNTERFEIT COINS There are two main types of coins forgery: The one type produces fake coins en masse intended for circulation. Such counterfeit coins are often underweight or under-karat and may have designs that are less refined than those of the genuine coin. These forgeries are easy to identify when compared with a genuine coin’s weight, dimensions, sound when dropped and design details. The second type of Forgery produces coins on smaller scale to sell at a premium to collectors. Genuine coins are produced by a stamping process using sophisticated presses, while most counterfeit coins are cast by pouring liquid metal into moulds or dies. The latter process often leaves identification marks such as cards or pimples on the counterfeit coin. Antique coins are often forged in this manner. Such counterfeit can be identified by rough feel between the fingertip, the lack of patina, file marks on the edge where the casting sprue was removed or a thin raised line on the edge of the coin which formed at the joining edge of two moulds. REPRODUCTIONS OR REPLICAS OF ANTIQUE OR VALUABLE COINSThese are normally produced for educational purposes, stage money and historical enactments and are often sold by museums. They are not considered counterfeits as they do not purport to be the genuine article. Some may have deliberate changes in design and may have the word “copy” or a set of initials on one or both sides. Article courtesy of SA Jewellery News
Advice on gold investments during periods of inflation
Like most countries, South Africa is experiencing high inflation levels in the wake of the pandemic and recent events in Ukraine. The effects are being felt in supermarkets, at filling stations and in our monthly utility bills. Consequently, many of those with some cash to spare are seeking a means to combat steadily rising prices. Many South Africans are now asking whether Gold investments might provide a possible safety net during these troubling times. Historically, the yellow metal has proved itself repeatedly, showing gains when other options are in decline. Its value as a hedge against inflation is well-established. One prominent US asset management company notes that, since 1973, Gold has consistently outperformed the national inflation rate by two per cent and continues to do so. This observation alone confirms the importance of this Precious Metal as a means of long-term protection against the effects of inflation. Bullion coins such as the Krugerrand offer an affordable entrée for anyone considering Gold investments. While the world’s reserve banks regulate currency value by purchasing and selling kilogram Bullion bars, few private investors can afford to deal in such large quantities. To encourage investment among the general population, the South African government introduced the 22-karat, one ounce Gold Krugerrand in 1967. The iconic minting quickly became the first legal tender Bullion coin to gain worldwide popularity as a collectable item and an investment vehicle. The subsequent introduction of the half-, quarter- and tenth of an ounce-versions has made Gold investments even more accessible to those of more modest means. For those with a little more to spend, there is the option to purchase 100-, 50-, and 10-gram Minted Bullion bars. While there is ample evidence to support the benefits of investing in this Precious Metal, a word of warning is necessary. Like share prices, the value of Bullion does occasionally fall, although it is far less volatile than most other commodities overall. If you are looking for overnight riches, perhaps you would be better advised to buy lottery tickets. Whether you purchase Bullion or one of its exchange-traded commodities, you need to think of Gold investments as a long-term strategy. As a tradeable asset, the yellow metal has undoubtedly stood the test of time. Furthermore, the ongoing demand from Jewellery manufacturers and the electronics and aerospace industries offers investors ample reassurance of its future value. One thing that has become abundantly clear is that a rise in the inflation rate inevitably increases the demand for Gold. We are now in the second quarter of 2022, and the prospects for the remainder of the year are hardly optimistic. The expectation is that inflation will continue to rise, driven by the lingering effects of Covid-19, the Russian invasion of Ukraine and other potential geopolitical conflicts. On the plus side, Gold investments offer a means to survive the current crisis profitably. Article courtesy of Mr K
