Gold Ratios: How Much Is Gold Worth Relative To Other Assets?

The physical and chemical properties of gold make it a very valuable element with numerous applications. It is used in sectors such as industry, technology, medicine, and jewelry, and is also an excellent asset in the investment universe. Also, as it is a very rare precious metal compared to others, it gives it even more value. Investing in physical gold has become a highly demanded option for many investors, and it is even now possible to buy gold online easily and safely.

When we talk about investments, gold is appreciated by comparison with other assets. Making certain comparisons can help us determine its value. In fact, in addition to the price of gold, some measures can tell us where it is concerning other precious metals, raw materials, or investment assets such as bonds or shares. By this, we mean gold ratios.

What Are Gold Ratios?

The ratios are comparisons that are made with elements that share a series of qualities with gold, such as its condition as a raw material, precious metal, or investment asset, for example, and help us analyze the prospects for the evolution of gold.

A ratio is a quantified relationship between two magnitudes that reflects their proportion. In this case, one of these magnitudes is always gold, and the other varies depending on the element with which you want to compare.

Three ratios are considered the most important and on which analysts focus to analyze the nearest future path of gold: the gold/silver ratio, the gold/Dow Jones ratio, and the gold/debt ratio.

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The Most Important Gold Ratios: Gold/Silver, Gold/Dow Jones, And Gold/Debt

Gold/silver ratio: this magnitude indicates the number of ounces of silver that can be bought with one ounce of gold. Of all the comparisons that are made with gold, the gold/silver ratio is the most used. One aspect to take into account when we talk about this ratio is that silver appreciates more than gold in bullish periods.

Gold/Dow Jones ratio: can help detect the flow of money that occurs between the stock markets and gold. It measures how the Dow Jones Industrial Average, an index that measures 30 large companies in North America, evolves about an ounce of gold. Gold and the Dow have always been inversely related, meaning when the economy is good, the Dow is more attractive and there is little incentive to invest in gold. Conversely, when the Dow Jones is undervalued, gold is an asset to own. The gold/Dow Jones ratio can be an excellent tool to identify the change in a wealth cycle from the stock market to gold and vice versa.

Gold/debt ratio: in this case, gold is related to the average debt of the countries of the world. It is the ratio with the least mobility since the debt situation cannot change in the short term.

Other Ratios To Take Into Account

The ratios mentioned above are the most prominent, but others may be important to some investors at any given time:

Gold/oil ratio: the number of barrels of oil that can be bought with one ounce of gold. The higher the ratio, the cheaper oil is relative to gold. It must be remembered that oil is a commodity that affects the global economy. Its production and consumption are indicators of economic activity, and changes in its price affect consumer prices and generate inflation, which leads to changes in monetary policy, also creating a notable impact on the economy.

Copper/gold ratio: when the price of copper falls, it usually indicates that a recession is coming. Considering that gold is an excellent safe-haven asset when gold rises it means optimism for an economic expansion, while when gold rises it is the opposite. By dividing the price of copper by the price of gold, we can get a view of the economic expectations of the market.

Ratio HUI (Bux Amex Gold): this is an index of companies involved in gold mining, and whose gold protection coverage is limited to periods of up to 18 months. It is a very valid ratio to anticipate gold trends.

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Reasons Why The Price Of Gold Can Go Down Or Up

When buying gold bars or coins, the price is decisive, and it can go up or down depending on some key factors that are important to know when investing in precious metals. Which are? Next, we make a brief review of the most outstanding.

Interest Rate, Inflation, And Gold Price

As we said, some aspects affect the price of gold. One of them is the national interest rate. Unlike other investments, gold does not pay interest. When it rises, gold tends to fall as investors move to other assets whose performance is directly related to the interest rate. However, when there is a low-interest rate, which usually coincides with a period of economic uncertainty, gold tends to rise. Its use as a refuge value has a lot to do with it.

It is necessary to keep in mind that inflation and interest rates are related. When there is sustained growth in prices at a general level, interest rates are higher. Gold usually works best in situations of high inflation, or deflation, that is, when there is a sharp increase in financial stress.

Geopolitical Events And Economy

Geopolitical events also play a relevant role in this regard. When there is international tension, the price of the yellow precious metal normally tends to rise. In this case, investors seek to buy gold to have greater security at a time when confusion prevails.

Let’s not forget that politics and economics go hand in hand. If we take into account that gold is a haven asset, an economy in recession is the ideal environment for the price of gold to rise, while an expanding economy in good health offers more assets that can be much more interesting than gold. Prayed. We must think that the biggest movements of gold occur when there is a greater financial risk. If the world economy grows at a good pace and no crisis is looming, the price of gold will likely tend to decline.

Gold Supply And Demand

On the other hand, we cannot forget about supply and demand. As with any other commodity, gold production varies over time, as does the level of demand. We must know that there are four main areas of demand for gold: jewelry, technology, investment, and central banks.

And what about industrial production? It is yet another factor slightly driving the price of gold. Increased production leads to increased demand for gold, and vice versa.

Gold And American Dollar

Gold is valued in a standard way by measuring its price based on the number of dollars it takes to obtain one ounce of gold. The relationship between gold and the dollar is inverse. What does this mean? That when the dollar rises, gold falls, since one dollar buys more gold than before.

Gold also falls when bond yields rise, especially US Treasury bonds, which are considered the benchmark for measuring that yield.…

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How Does Inflation Affect The Demand For Gold?

Inflation is one of the most important aspects of the economy for consumers. When inflation rises, we can buy fewer goods and services with our money, thus losing purchasing power, which worsens our quality of life. This feared rise in inflation benefits gold since it increases demand for the precious metal by helping to reduce its impact on the economy. Buying gold bars or investment coins then becomes an excellent option as a method of protection against inflation.

Taking into account the doubts that the relationship between inflation and gold generates, below, we want to explain in detail what exactly inflation consists of, what are the expectations for the coming years and how gold can help against it.

What Is Inflation?

Inflation, in economics, consists of the general and sustained increase in the prices of goods and services on the market in a country, for a certain time. It is usually around a year. This rise in prices means that with the same monetary unit, we can acquire fewer goods and services. In short, inflation is the visible consequence derived from the devaluation of the currency.

How Is It Measured And What Causes Inflation?

To correctly measure inflation, the increase in the price of a weighted basket of goods and its annual variation is used, through the Consumer Price Index (CPI). There are several levels of inflation:

  • Moderate: less than 10% per year.
  • Galloping: two or three digits.
  • Hyperinflation: higher than 50% per month (close to 13,000% per year).

What leads to the increase in inflation, among other things, is the increase in the price of raw materials, the increase in demand for goods, or the forecast of the rise in prices. There are numerous causes.

How Gold Protects Against Inflation

Faced with rising inflation, the main consequences are the devaluation of the currency and the loss of purchasing power of consumers. In this threatening environment, investors try to find means that allow them to protect their assets as much as possible. This is where gold plays a relevant role since it performs better than other assets in periods of high inflation. In periods of low inflation, moreover, gold tends to appreciate.

With this in mind, if an investor wants to preserve capital, buying gold has always been the best way to go. What advantages does the golden precious metal bring when inflation grows?:

  • It allows for diversifying the investment portfolio.
  • It protects against what is known as “tail risks” or tail risks”. These are events that are not very likely to occur, but that affect the investment portfolio.
  • It offers more liquidity than other assets such as stocks or bonds.
  • It protects the investment portfolio both in times of high inflation and in times of strong deflation.
  • It also protects against the risk of currency devaluation.

If inflation is out of control over the next few years, the risk of owning gold is minimized. Any consumer or small investor can bet on acquiring physical gold to protect themselves from inflation and the loss of purchasing power.

In the current situation, taking into account that we are coming from a major health crisis, everything points to the fact that as we begin to come out of confinement and vaccines advance, the economy is recovering, which means that over the next few years we will see an increase in inflation levels.…

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Why Gold Is One Of The Most Profitable Assets?

Gold has become a very present element in investment portfolios, as an excellent alternative to stocks and bonds. It is a refuge asset that grows in times of crisis, and that, in addition to being a good investment asset, is also a consumer good capable of generating profits in good times. Many investors today consider buying gold for the first time but have serious doubts about its profitability. For this reason, in this post, we want to emphasize the role of gold as one of the most profitable assets.

Buying physical gold is a very interesting option for the most prudent investors. It is an asset that has been present in our lives for more than 6,000 years, and has always been universally appreciated by all civilizations and considered a symbol of wealth.

Investment In Physical Gold And Profitability

Previously we already talked about gold as a long-term store of value, and it is that the investment in ingots or bullion coins guarantees that the buyer can have the exact amount of the precious metal for which he has paid. In addition, the advantages of this form of investment are very notable:

  • Immediate liquidity, anytime, anywhere.
  • There is no counterparty risk.
  • It does not depend on the solvency of third parties, since it has value in itself.
  • It does not lose its value, regardless of changes in its price.
  • In the long term, its profitability usually exceeds that of other assets.

It is very common for investors to resort to gold as a complement to other types of investments to diversify their portfolio, and thus be protected against inflation in times of instability or crisis.

Why Do We Say That Investing In Physical Gold Is Profitable?

Taking all of the above into account, we cannot fail to highlight investment in coins or gold bars, as a haven asset that increases its value when the stock markets fall and in the face of economic crises. The opposite is also true, so when stock markets are skyrocketing and the economy is at its best, the price of gold falls.

Investing in physical gold is profitable and the benefits it brings confirm this:

  • Security: it is a value that has always been praised throughout history. Whether we invest in gold bars or bullion coins, it is a safe investment.
  • Ease of sale: as it is a globally recognized asset, it can be sold in all markets. In some countries like China, for example, investment in precious metals is even more valued than in the West. No matter where we are, we can always sell our gold bars or coins.
  • Stability in its value: indeed, the price of gold fluctuates continuously over time. However, its value maintains a higher stability than the stock values ​​that occur in most markets. This is so because even with their upward or downward variations, they are normally smoother than those suffered by other less secure assets.

In addition to all this, it should be noted that gold moves in the market in a very different way than other assets such as stocks or bonds, which generate dividends or interest. Gold does not earn interest or dividends, but investing in gold is profitable and can lead to capital appreciation. It must be remembered that, throughout history, it has been shown time and time again that when problems arise with currencies, the precious yellow metal rises rapidly in price, sometimes being the only asset that produces profits.…

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What Is The Role Of Central Bank Gold Reserves?

There are many doubts surrounding physical gold in the form of coins and bars, and one of the most prominent is the role that central banks play in the sector through their gold reserves. These represent some of the main gold claimants and in their vaults, they keep more than 34,000 tons of gold.

Central bank vaults typically have long rows of racks stacked with 400-ounce gold bars. This means having numerous custody and surveillance resources to protect the gold. Why do global central banks hoard gold bullion and what do they use it for?

Reasons Why Central Banks Hold Physical Gold

Gold is a haven asset in times of crisis that offers great liquidity, as well as a long-term store of value. It must be taken into account that the price of gold usually increases in times of crisis, which provides great protection in times of uncertainty. In addition, it does not imply credit risk for banks and has almost no correlation with other asset markets.

It is important to think of liquidity as one of the main reasons for accumulating gold, since it is very easy to negotiate the sale of gold bars in the main global markets, such as London or New York, for example. In this way, it is very easy for banks to obtain short-term liquidity when it is needed by actively managing gold through its reserves by carrying out different types of transactions.

In conclusion, the physical gold that banks accumulate offers greater security than other assets in difficult times, great liquidity, and more long-term profitability than other assets, thus allowing them to meet their main strategic objectives.

An increase in central bank demand for physical gold reflects current global political, geopolitical, and economic conditions and changes.

How Do Central Bank Gold Reserves Work?

The gold that is kept in the reserves of the central banks, is it simply stored, or is there activity? The first thing that must be made clear is that it is not a question of patrimony that must be immobilized in the vaults, but that these international reserves must be made up of gold or convertible currencies to be able to be used simply in times of crisis such as the one we are currently experiencing due to the COVID-19 pandemic.

Central banks thus choose the assets that are going to form part of their reserves based on their credit quality, liquidity, and what they contribute to the risk profile of the investment portfolio. Gold is one of the strategic assets most used by bank reserves to manage short-term liquidity, or as a long-term store of value.

What does this all mean? That this type of financial entity actively manages its reserves. How do they do that? They use gold as collateral for deposits, through loans, or financial swaps, also known as swaps, with other international banks, for example. To be able to carry out this type of management with the reserves, the gold must be adapted to the relevant legal agreements and international standards, as is the case of banked bullion with a Good Delivery certificate. In this way, it is easier to move quickly in times of crisis.

Central banks can also buy or sell gold when needed as part of their routine balance sheet adjustment operations.

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