The gold price suffered some substantial losses during the past year. This is why some market participants declare that Gold is Dead.
1. Historical gold bull market
For millennia, the place of gold and silver has been to serve as stores of value. They protect wealth better than any other investment. Look what happened in the 1970s, when we came off of the gold standard and allowed private ownership of gold. Investors, the rich, and middle class and working class alike piled into the metals. At the beginning of the 1970s, gold was at $35 per ounce. Ten years later, the price stood at $870 per ounce. This is a percentage gain of 2,485 percent. In contrast, during the same time the Dow Jones Industrial Average increased from 809 to 839 points. This represents a total gain of 3.7 percent; not per year, but for the whole decade.
2. Gold Demand
Demand for investment gold is very strong. Last year, the U.S. Mint ceased production of the one-tenth ounce American Gold Eagle because of high demand. This was a sign of record buying, but what is more interesting was a recent World Gold Council report that focuses the demand worldwide. Highlights from the report include continued strong demand in jewelry, particularly in India.
3. The Role of Mining
With the devastating selloff that began in gold in October 2012, the sector is now being avoided like the plague. However, these same miners could support gold and silver prices. Looking to production cost for gold as an indicator, which relies on several factors and varies globally, a ball park average to produce one ounce of gold is about $1,100. The all-in costs of production vary by miner, but with gold around $1300, cost is a major issue.
4. Stocks vs. Gold
The U.S. recovery and global commerce seem to be ramping up, which is an issue for the metals, no doubt. There have been both fundamental and technical reasons for gold’s selloff in the last years. A large driver of the move in gold prices was that major money moved from the metals and into equities. Keep in mind that if this fragile economic rebound falls off track, people will be looking for safe havens. On the other hand, growth isn’t necessarily bad for the metals, as it could lead to some much desired inflation, which always helps metals.
5. Gold is Fungible
For example, gold is fungible since a specified amount of pure gold is equivalent to that same amount of pure gold, whether in the form of coins, ingots, or in other states. Other fungible commodities include sweet crude oil, company shares, bonds, other precious metals, and currencies.
Fungibility refers only to the equivalence and indistinguishability of each unit of a commodity with other units of the same commodity, and not to the exchange of one commodity for another.
Source: Fungibility, https://en.wikipedia.org/w/index.php?title=Fungibility&oldid=1030438764 (last visited Aug. 11, 2021).
Gold can be moved over borders
To illustrate this, I bought some gold coins and silver coins in Germany:
I took these coins into my wallet and transported them on my flight from Nuremberg, Germany to Varna, Bulgaria.
Neither the security check nor the customs control complained about my precious metals.
In Varna, I directly went to the Mall of Varna and tried to sell my coins there.
I tried to find Varex gold, but went to the wrong mall.
Please note that Varna Mall and The Grand Mall are two different locations:
Finally, I found Tarex on the first floor of The Grand Mall.
They offered me less than I paid for my coins. This is the reason why I did not sell them to Tarex…
But, lesson learned, precious metals can be carried from one country to another and be sold there.