Happy Election Day! I know I don't need to remind you to get out and vote, because every B-list celebrity and Instagram ad already has.
We’re going to distract you from the political headlines with something something known for being consistent, dependable, and really really pretty. Today, we are going to give you a crash course on investing in gold.
📰 In the Headlines
Breaking down some of this week's biggest stories
Translation: The CDC ended the official ban on cruises, but it may be a while until they set sail again
On Friday, the CDC announced a new framework to help cruise lines resume sailings as soon, and safely, as possible. But, many major cruise lines say it will take months to implement new safety protocols. The cruise industry provides hundreds of thousands of jobs, and many cities rely on that tourism revenue that passengers bring.
Translation: Twitter’s CEO almost got fired
Yep, CEOs have bosses too. Jack Dorsey is the CEO of Twitter and Square, and some investors were worried he is spreading himself too thin. After a formal review by the companies board of directors, it was decided that Jack was managing his balancing act pretty well, but plans to revisit the topic again next year.
Translation: The biggest IPO ever is now in limbo
Ant Group, a Chinese company behind multiple online payment platforms, was set to go public this week on the Shanghai stock exchange, at a $35 billion valuation. Those plans are now on pause as Chinese financial regulators decide they need to take a close look at the company's books.
✨All That Glitters
Gold has a reputation for being the go-to dependable investment, which can seem very attractive in a year in which one of the most used words has been unprecedented.
Like John mentioned on the podcast yesterday, in times of intensified risk, people take money out of growth stocks and go into more steady options.
But, there is a bit more to the story when it comes to this precious metal. Here is our guide to the basics of investing in gold:
4 Factors That Affect the Price of Gold
There are infinite things that affect how much an ounce gold is worth, but its value usually correlated to these factors:
- Currency: While the US have been off the gold standard since the 1970’s, the value of our dollar still has a strong effect on the price of gold. When the value of the U.S. dollar falls compared to other currencies, either because of inflation or trade, that tends to push gold prices higher.
- Monetary Policy: The Federal Reserve is the government organization that sets our country's policies about money, including interest rates. When interest rates go down like this year, that historically bumps up the value of gold.
- Supply: Also known as, how much gold is available to buy. Factors like whether gold mines are up and running, if popular technology needs gold, or how trendy gold jewelry is affect the price.
- Uncertainty: When the world feels crazy, investors like to buy gold. When we were hit with the Great Recession, gold prices rose. The chaos of 2020 has not been immune to this either, with gold prices spiking in mid August.
3 Ways to Invest in Gold
- Physical Gold: Buying gold bars, coins or jewelry are obvious ways to put your money in the gold market. Having your own gold comes with a lot of storage and insurance implications, so it's best to find a reputable dealer who can walk you through the process.
- Gold Mining: Buying stocks in gold mines is another way to take advantage of rising gold prices. Companies like Kirkland Lake Gold Ltd. & SSR Mining have been scaling up production for the past few years, and are well positioned to perform well when prices rise.
- Gold Funds: If you want to invest directly in gold without the hassle of storing it, a typical investor can invest in mutual funds that buy gold, or gold ETFs which are traded like shares on stock exchanges. The SPDR Gold Trust and Invesco Gold & Special Minerals Fd are good places to start.
The Pros and Cons
Trying to decide if you want to take a dive into investing in gold? Be sure you're aware of all the potential risks:
- Diversity: A good investor doesn’t put all their eggs in one basket. With its negative correlation to the stock market and currency values, gold provides a great way to lower your overall investment risk.
- Safety: Gold holds its value best during times of financial instability, including geopolitical unrest. During hard times, gold prices generally outperform other investments.
- Taxes: Most gold investments are taxed much higher than the normal rate. Be cautious or you many think your gold investment is more profitable than it really is.
- Low Reward: While gold does hold its value, it historically lags behind the returns on stocks and bonds. For the past 30 years, the Dow Jones— a good representation of the overall stock market — has significantly outperformed gold.
- Liquidity: Unlike stocks and funds, it may be tough to resell physical gold. Pawn Shops aren’t known for their fair pricing, and dealers are likely to only buy back below the gold’s spot price.
The Bottom Line:
While owning gold sounds cool, and may even be considered responsible during a recession, investing in gold comes with some unique challenges and doesn’t always pan out the way you might expect.
Word of the Day
(n.) In the world of finance, “liquidity” describes how easy it is to sell something for cash at the price it is worth.
Things with high liquidity are easy to sell for cash, like a stock. Things with low liquidity are either difficult to sell logistically, or you have to reduce the price of it by a lot to make it sell quickly, like a house or car.
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