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Central banks hold paper currencies as reserves. The value of legal tender depends on the full faith and credit of the governments that issue the money. The oldest form, which is thousands of years old, is gold. The Bible has over 400 references to this precious metal. Gold is the strongest form of money in the world that goes beyond. Governments around the world classify gold as a foreign exchange reserve, confirming its role in the global financial market.
In 1999, gold fell to a bottom of $ 292.50 an ounce when the United Kingdom sold half of its stocks at auction. Ironically, the UK is home to the international gold market, and the government has dismissed gold as a barbaric relic of years past. Since then, gold has reached higher lows and higher highs, leading to the last peak at more than $ 2,070 an ounce in March 2022.
In recent years, central banks and governments have been net buyers of gold, replenishing their reserves. China and Russia, the world’s two leading gold producers, bought annual products and even bought the metal on the international market.
In 2022, the role of gold in the financial system is growing. Central banks and governments can print legal tender if they like, but the only way to increase gold reserves is to extract more from the earth’s crust.
Gold mining companies tend to provide leverage over the metal as they invest heavily in gold production. Leading gold mining stocks often outperform gold when the price rises and lower when it goes down.
Gold has been in a bullish trend for twenty-two years
Gold reached a new high in March
- Gold first exceeded $ 2,000 an ounce in August 2020.
- The precious metal consolidated and digested a new high from August 2020 to February 2022.
- In March 2022, gold reached a new record high – more than 2070 dollars per ounce.
Reasons why the rally should continue
- Gold is a hybrid asset – part of the currency and part of the commodity.
- Gold volatility is lower than other commodities but higher than other currencies.
- The first reason is that inflation undermines the purchasing power of fiat currencies. Real interest rates remain in negative territory. Gold is a barometer of inflation and the accumulation of value.
- The second reason is that central banks and governments can increase the money supply to their liking. The only way to increase gold reserves is to extract more from the earth’s crust.
- The third reason – the war in Ukraine – is also an economic battle between Russia-China and their allies and the United States-Europe and their allies. Economic sanctions open up a new role for gold as Russia has backed its ruble with gold, making 5,000 rubles exchangeable per gram of gold. If China follows him, the role of gold in the global financial system will grow.
- The fourth reason – the trend – is your friend, and he is higher for gold.
Gold mining stocks say gold is going up
- As of April 22 at $ 1934.30 gold has risen 5.50% since the end of 2021.
- At $ 36.94 per share VanEck Gold Miners ETF ( GDX) the senior gold mining ETF grew 15.3% over the period.
- At $ 45.61 per share VanEck Junior Gold Miners ETF ( GDXJ) junior gold mining ETF for this period increased by 8.8%.
- The rise in gold mining stocks suggests that gold is moving towards new historical highs.
Newmont Corp ( NEM) is the world’s leading gold mining company. Shares of NEM rose to a new record high of $ 86.37 on April 18 before the correction, but were still more than 20% higher in 2022 and stood at $ 74.52 per share on April 22.
Two ETF products track older and younger gold reserves – diversification reduces risk
- GDX I.A highly liquid ETF product that owns a portfolio of stocks of leading gold mining companies.
- GDXJ is a highly liquid ETF product with a portfolio of leading junior gold mining companies.
- Gold mining companies tend to provide leverage over the price of gold because they outperform in percentage terms when gold rises and lower when the price of gold moves lower.
- GDX and GDXJ are diversified products that reduce the unique risks of holding individual companies, such as company management, location of specific mining facilities and other risks.
Gold has been a major asset for thousands of years. Uncertainty in economic and geopolitical landscapes is supported by gold as it has a long track record as a storehouse of value.
Stock News Contributor: Tradier Inc.
Source: Stock news
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