Gold Is Not An investment – It’s A Store Of Value

It’s clear to be bullish about gold prices, but if you’re not comfortable with investing, then at least think about having some gold for a rainy day…

by Simon Popple of Brookville Capital

Gold is not an investment – it’s a store of value

 

And a medium of exchange….

Before I kick off. Let me be crystal clear about something.

I’m not a doomsayer.

But right now….and remember….investing is all about timing….I think there is less risk to holding gold than not.

Put your prejudices to one side. Think of it as a store of value rather than an investment.

Personally, I like the miners, because of the leverage they offer (more on that later). But you should probably think about having a few gold or silver coins. In the UK they should be CGT free (please check your own tax rules though!) and if you buy them from a reputable dealer, you should be able to sell them back if the wall of worry we’re now facing disappears.

You should be aware that silver attracts VAT (in the UK), so you would have to pay about 20% more than the price of your coin, but if you think about it as insurance rather than investment – it may be something you can live with.

I’m not talking about a major commitment here……just some insurance.

Why do I like the miners?

The gold and silver mining industries are on their knees.

Whilst the bonds, equities and real estate have all been going through the roof, the share price of mining stocks have largely been heading south. Of course, there are a few exceptions, but if you pick out several mining companies, you’ll see that many are close to multi-year lows. Take a look and do your own research. I’d suggest you look at the Australian and Canadian Stock Exchanges where most of them are listed.

Anyway, this is my point.

Many miners having All-in sustainable costs of circa $1,100 per ounce (obviously some are higher and others lower) and the gold price is circa $1,300 per ounce, so that’s profit of $200 per ounce for a sample company.

Let’s say the gold price increases 20%, taking it to $1,560 per ounce. Some way south of the all-time high of $1,895 per ounce in September 2011, then although costs may creep up a bit, at least over the short term, they’re unlikely to move anything like the pace of the gold price.

In this example let’s assume they increase 10%, so we’re talking about a gold price of $1,560 and costs of $1,210 per ounce. A profit of $350 per ounce.

As you can see, in this example, the gold price has gone up by 20% but the profit per ounce has increased from $200 to $350 – that’s a 75% uplift.

Ok I hear you say….but that’s an investment.

I would have to agree.

Clearly you need to be bullish about gold prices, which I am. But if you’re not comfortable with investing, then at least think about having some gold for a rainy day.

Just a small amount of physical gold or silver probably makes some sense. Gold is respected throughout the world for its value and rich history. How many other assets do you know that can make the same claim?

Here are a few other reasons why you may want to think about it…

1)   It’s pretty good at holding its value

2)   If the Fed pauses their interest hikes the US dollar will probably weaken….normally good for gold

3)   Inflation may be on the horizon – gold has a good track record of maintaining purchasing power

4)   Geopolitical uncertainty – gold is one of the few “portable global assets:

5)   Supply – many people would view us as being at “peak gold” – finding more gold is becoming increasingly difficult. And don’t forget, you can’t print it!

6)   Increasing demand – particularly from Central Banks – what do they know that we don’t?

7)   Portfolio diversification – it normally has a low correlation to other investments. So makes sense to have a least some in your portfolio

Anyway, I don’t want to bore you. But think about it.

Please take a look at my website www.brookvillecapital.com if you’d like to take a deeper dive

 

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www.brookvillecapital.com