Why Buy Bullion
If this is your first time looking into buying gold and silver bullion you might be feeling a little daunted or unsure. However, rest assured it is simple to understand why it's worth considering and even easier to buy when you are ready.
First, let's outline gold and silver bullion's properties in the world of finance:
- Gold and silver bullion are hard assets.
- They are not 'financial' or 'paper' assets.
- That means their value is intrinsic (in and of itself by virtue of its rarity).
- There is no counterparty risk (no promise to pay, promise to increase earnings per share or not go bankrupt,
or bail-in risk, etc etc).
- They become the 'go to' asset when financial assets crash.
- "If you don't hold it, you don't own it" – everyone's Grandpa
- Gold and silver is often referred to as 'money' not an 'investment'.
- Gold and silver meet each of the long held '7 fundamentals of money'
As inflation, expansion of the monetary base, and devaluation of currencies erode your modern 'money', gold and silver have protected wealth for literally thousands of years.
"Gold is money. Everything else is credit" - J P Morgan
As a safe haven or 'defensive asset' you might expect lacklustre 'safe' returns?
Over the 15 years to 2016, both gold and silver outperformed Aussie shares (including dividend reinvestment) and cash in Term Deposit.
Everyone has their own motivations to invest in gold and silver. Here are the 3 main reasons we see:
The following are just brief summary points.
1. SAFE HAVEN AGAINST ECONOMIC UNCERTAINTY
Gold and silver are generally uncorrelated to shares or equities.
In the five worst years on the ASX, shares declined 24.4% and gold rose 38.5%. You were 63% better off in gold. In the GFC (over 2 years) – shares halved and gold doubled.
Since the Global Financial Crisis (GFC), a financial crash caused by too much debt, we have seen over 40% more debt added to the system.
We have seen Central Banks around the world unleash unprecedented monetisation ('printing money') and reduce interest rates to near and even below zero.
This desperate attempt to reflate the system has not worked. Amid moribund real global economic growth, it has artificially inflated financial assets (shares, bonds, etc) beyond fundamentals. It has made it worse and left them
nowhere to run when it next crashes.
Many believe the next financial crisis is nearing and will be far, far worse than the GFC.
2. SUPPLY & DEMAND FUNDAMENTALS
Both gold and silver production appear to have reached a peak in 2015 and are now in decline after years of suppressed prices, declining mining yields and lack of new
discoveries. As at 2016, demand for gold outstripped mine supply by 33%.
The world's Central banks, already strategically holding large quantities of gold, have bought over 3,000 tonne since the GFC.
Whilst there is around $7.5 trillion worth of gold in existence, estimates indicate only $1.5 trillion is available to the financial market. There is approx $295 trillion of financial
assets in the world. What happens when even a fraction of that $295 trillion tries to get into that $1.5 trillion market space?...
Chinese demand has surged since 2013 and continues. Investment demand too, started to surge in 2016.
About half of all silver produced is used in growing industrial uses to which its properties are unique. Most of those uses discard the metal afterwards without recovery.
Both gold and silver are relatively small markets that can quickly be overwhelmed by sentiment based investment.
3. CURRENCY HEDGE
The spot price for gold and silver are US dollar denominated. A falling Australian dollar sees the metal price in Australian dollars rise (with no change in the US spot price).
Many economists are predicting an Aussie dollar in the 60c's and 50c's in the near future. From, say, 75c that represents a 25% or 50% rise in price on either scenario without 1c change in the US spot price, and all at the same time that your Aussie dollars buys less internationally or on any import.
