Introduction
Dealing with gold remains one of the most challenging yet profitable ventures in the world. Globally, gold is highly regarded as the most significant reserve and one of the most valuable minerals. Gold has an estimated average annual return of up to 26% (Financial Express,1). Currently, gold is trading at above $1000 per ounce and it has renewed interest and more investors are willing to invest in gold stocks.
Analysis
The sudden increase in gold prices can be termed as the gold bull (Wright 2). Gold stocks have provided investors with a good influence on the increasing price of gold. The companies that engage in mining and exporting the precious metal to the market should be in a position to bank more than they are currently banking during this period of gold bull. Thus, this is a very promising sector and it is important to come up with an investment strategy that will fully utilize the full potential of this venture.
However, there are two major factors that are interfering with the prospect of investing in gold. Gold mining companies are facing various difficulties when it comes to mining. Inflation, geopolitical environment, and numerous regulations like environmental policies are creating more hurdles as years go by. Initially, the gold bull concept of leverage was the key driving force in gold operating costs with a little adjustment caused by inflation.
It was quite direct that an increase in gold prices would automatically translate into an increase in gold-mining profits. Hypothetically, every gold dollar increment would interpret as a dollar increment for mining firms that sell their gold at market prices (Wright 3). Eventually, the appeal of gold stocks makes the mining companies raise their profits at a considerably higher rate than the underlying metal.
Another thing that is coming in between the realization of this venture’s full potential is the international unease of the largest developed economies. The increasing use of gold as a monetary asset is a huge issue that should not be ignored by policymakers when coming up with a policy of how to correct the current trade imbalances and the global trade as a whole(Brown 4). The developed countries have huge reserves of gold which makes the undeveloped countries to be in an inferior position. This makes them shun away the use of gold as a benchmark.
With the current prices of gold up to $1400 per ounce, the world is more likely to create a monetary system in which the US dollar will be one of the few reserve currencies with a flexible exchange rate. Gold is now perceived to be the alternative monetary asset that is globally accepted. However, this is not the same case when it comes to the gold standard. Gold has become more of a reference point. This is because people, who are holding on to money, see a certain fragile growth panorama in all the currencies (Brown 5). Thus, for people who want to store money, gold is the most ideal because it reduces speculation. By using gold, large economies will have to come up with policies aimed at increasing growth, structural reforms, and a situation of open trade.
The best way to capitalize on this trend is to try to buy already existing gold than to mine gold. Already, this is a trend that few are slowly embracing when engaging in the gold business. Currently, there are numerous “We Buy Gold” or “Gold for Cash” adverts that are trying to persuade people who already have gold to sell. Banks are not left behind as they are also trying to encourage their customers to convert their jewelry to cash (Jake).
Conclusion
According to the study, it has been observed that gold is more stable when it comes to reserves than cash. This is because different currencies from different countries use gold reserves as a reference point. In addition, based on the current prices of gold per ounce, it was noted that it is a mineral with a steady value and demand. Investing in the gold industry can be a very profitable venture if gold is bought from merchants or different owners and then sold to processing companies as opposed to mining.
References
Brown, Kevin. “Zoellick urges G20 to heed gold price”. Global Economy 1.1 (2010):4-6.
Financial Express. “Gold yields 17% average return”. Financial Express 1.1 (2009) :1-2.
Jake, Anderson. “Bigwave Marketing: How Thousands are Capitalizing on Huge Cash for Gold Trends Happening Now”. 2010. Web.
Wright, Scott. “Gold mining challenges”. Zeal Speculation And Investment 2.1 (2007) :23.