Gold is not a conventional commodity and therefore it cannot be considered the same way as other investment assets.
Gold and silver cannot be understood by conventional commodity analysis. All the gold that has ever been mined is currently in human hands and so is silver (more or less). According to the World Gold Council, about 201,296 tons of gold have been mined and that is worth almost $12 trillion.
All of this above-ground gold that people have been accumulating over millennia is also potential supply because gold can be recycled.
Unlike other commodities, almost anyone on the planet is a potential gold buyer. People are happy to accept the 1,001st ounce on the same ounce as they would the 1st ounce. The demand has and will always be there and it is the supply and demand dynamics that largely push the price of gold up or down.
How is the gold market analysed?
The gold market is made up of 5 key groups: buyers and sellers of physical gold, buyers and short sellers of EFTs and market makers.
Even though the gold that was ever mined is in someone’s hands the market still experiences good seasons of abundance and relative scarcity. To understand where the gold market is headed one has to look at what the warehouse spreads are.
What’s a spread
The spread is the price of a gold contract for future delivery versus the price for immediate delivery or spot price. If the spread (future price minus spot price) is big then that’s an indication of the abundance of gold. This might be the ideal time to buy gold bullion as the price tends to be lower when there is an abundance of gold in the market. If the spread is narrow then that can be interpreted as a scarcity of gold in the market
To understand short and long term trends of the gold market, you as the investor, needs to understand what is happening. There are certain indicators that you need to be aware of. It is important to watch inflation rates, interest rates, central banks and the madness of Bitcoins.
Let’s look at Bitcoin…
There are a lot of people out there who claim that they can predict Bitcoin. Of all the things that you can invest in, Bitcoin is incredibly volatile. When you buy Bitcoins, you aren’t necessarily promised a specific return. You pay some amount on the Bitcoins based on the expectation that the price of Bitcoin will go up in the future.
Like any bull market, Bitcoin is fuelled by interest rates. Unlike gold or silver that are mined and processed and used in a myriad of industries, Bitcoin is just Bitcoin, its demand isn’t fuelled by any particular industry. Pretty much like currencies, it is valuable because some people believe it to be. What would happen if everyone decided to cash in and withdraw all their money? Will Bitcoin collapse like pyramid schemes often do when money is withdrawn all at once?
As we entered 2022, the big issue on everyone’s mind is Inflation. Will reserve banks increase interest rates or not?
Governments have been printing more money and most people would attribute the rise in prices of consumer goods on the flood of “new” money.
Price call for gold in 2022
The promise of rate hikes can have a ripple effect on more than just gold but all kinds of things could crash. Gold can be expected to crash less than other commodities so whatever lemons the markets throws at you, gold investors would be able to survive like it did in the 2008 global economic crisis so when you see price dips look to buy gold bullion.
It should be mentioned that seasoned precious metal investors also watch the gold-silver ratio people so it would be helpful for you to do the same when you want to buy gold bullion. There is a marked trend in the movement of silver if the focus in on gold-silver ratio. Most people looking to buy gold will come across the concept of the silver/ gold ratio. At 80:1 the ratio shows an upward force on the price of gold.