Gold price & Value

2. POINTS TO BE COVERED TODAY:
• Gold Prices, 2000—Present
• Calculating Gold's Value
• The Role of Perception
• Why Gold's Bubble Peaked in 2011
• How Far Gold Prices Could Fall

3. Gold, 'The Ultimate Bubble,' Has Burst
• In 2010, commodities trader George Soros famously said, "Gold is the ultimate
bubble.
• He was referring to the asset bubble that occurs when speculators bid up prices
of an investment beyond its intrinsic value.
• Soros argued that gold is the ultimate bubble asset.
• Unlike real estate, oil, or shares of corporations, it has very little fundamental
value upon which to base a realistic price.
• Soros seemed like a fool when he said this at the Davos World Economic Forum.
For another year, the price of gold soared, reaching a record of $1,895 on
September 5, 2011.
• Soros's words have a new relevance: On August 7, 2020, gold hit a new record
of $2,061.50. This was in response to fears of economic uncertainty caused by
the COVID-19 pandemic.
Soros's words have a new relevance: On August 7, 2020, gold hit a new record of $2,061.50. This was in response to fears of economic uncertainty caused by the COVID-19 pande
Soros's words have a new relevance: On August 7, 2020, gold hit a new record of $2,061.50. This was in response to fears of economic uncertainty caused by the COVID-19 pand
Soros's words have a new relevance: On August 7, 2020, gold hit a new record of $2,061.50. This was in response to fears of economic uncertainty caused by the COVID-19 pand

4. Key Takeaways
• Unlike real estate, oil, or shares of corporations, gold has very little
fundamental value upon which to base a realistic price.
• The biggest use of gold is for luxury items, with most of the yearly
gold supply being made into jewelry (78%).
• People believe that gold is a good hedge against inflation, but there
is no fundamental reason that its value should increase when the
dollar falls.
• Most financial planners advise that gold comprise 10% or less of a
well-diversified portfolio.

5. Gold Prices, 2000—Present
• Gold Price as of 10:30
a.m. (London time) in
London Bullion Market,
based in U.S. dollar, as of
the end of the month.

6. Calculating Gold's Value
• Unlike other investments, most of gold's value is not based on its
contribution to society.
• People need housing to live in, oil for gas to drive their car, and the
value of stocks is based on the contribution of the corporations
represented.
• The biggest use of gold is for luxury items.
• Most of the yearly gold supply is made into jewelry (78%). Other
industries, including electronics, medical, and dental, require about
12% of the year's supply.
• The rest is used for financial transactions (10%).

7. Calculating Gold's Value - I
• For this reason, Soros claimed gold was the most susceptible to "the madness of
crowds."
• He based his observation on his theory of reflexivity, which says that prices
shape perceptions of an asset's value as much as fundamentals do.
• It creates a loop where price increases shape perceptions. As prices rise, so do
the fundamentals.
• These feedback loops become self-sustaining, and the bubble inflates until it
becomes unsustainable.
• Spiraling prices continue longer than anyone thinks they will, and the collapse is
more devastating as a result.

8. The Role Of Perception
• More than any other commodity, the price of gold rises mainly
because everyone thinks it will.
• For example, people believe that gold is a
good hedge against inflation, and as a result, people buy it when
inflation rises.
• There is no fundamental reason that gold's value should increase
when the dollar falls. It's simply because everyone believes it to be
true.

9. The Role Of Perception- I
• Three years after gold hit its 2011 peak, it fell by more than $800 an
ounce.
• It dropped to $1,050.60 an ounce on December 17, 2015, and rose
to $1,300 an ounce by the end of 2017 because the dollar
weakened.
• There was no inflation, and the stock market was setting new
records. These are both historic drivers of rising gold prices.
• It was only the perception of possible inflation, due to the dollar's
decline, that sent gold prices higher.

10. Why Gold's Bubble Peaked in 2011
• Until 1973, gold prices were based on the gold standard.
• The Bretton Woods Agreement mandated that gold was worth $35 an ounce.
• When President Nixon took America off the gold standard, that relationship
disappeared. Since then, investors have bought gold for one of three reasons:
1. To hedge against inflation. Gold holds its value when the dollar declines.
2. As a safe haven against economic uncertainty
3. To hedge against stock market crashes. A study done by researchers at Trinity
College shows that gold prices typically rise 15 days after a crash.
• All three reasons were in play when gold reached its 2011 peak. Investors were
concerned that Congress would not raise the debt ceiling, and the United States
would default on its debt.

11. Why Gold's Bubble Peaked in 2011-I
• By 2012, much of this uncertainty was gone.
• Economic growth stabilized at a healthy rate of 2%–2.5%,
and in 2013, the stock market beat its prior record set in
2007.
• By the end of 2013, Washington had reverted to a state of
gridlock instead of perpetual crisis because Congress
passed a two-year spending resolution.

12. How Far Gold Prices Could Fall
• Gold's price would never fall below the cost to dig it out of the
ground and bring it to market.
• Depending on a variety of factors and inputs, that cost is
between $500 and $1,000 an ounce. (For 2018, the "all-in-
sustaining cost" for the industry was $837 per ounce.)
• Even in the worst-case scenario, gold prices will never fall below
$500 an ounce. If it did, exploration and mining would stop.

13. What Is Means To You
• Between 1979 and 2004, gold prices rarely rose above $500 an
ounce.
• The rise to record highs in 2011 was a result of the worst recession
since the Great Depression, and the 2020 records were due to the
COVID-19 pandemic.
• Most financial planners advise that gold comprise 10% or less of
a well-diversified portfolio.
• If you're holding more than that, talk to your financial advisor
before gold falls again.

14. Investing in Gold
• Investing in gold is not like buying stocks or bonds. You can take physical
possession of gold by buying either gold coins or gold bullion.
• Bullion is gold in bar form, with a stamp on it. The stamp contains the
purity level and the amount of gold contained in the bar.
• The value of the bullion or coin comes from its precious metals content
and not its rarity and condition, and it can change throughout the day.
• You can buy bullion or coins from some banks, dealers, brokerage firms,
and the U.S. Mint, which has been producing gold coins and bullion for
investment since 1986.

15. Investing in Gold-I
• You can also buy stock in gold mining companies, gold futures
contracts, gold-focused exchange-traded funds (ETFs), and other
regular financial instruments.
• If investors purchase a gold-backed ETF, they are purchasing
shares of a trust's ownership in gold, but have no claim to the
physical gold itself.
• Investing in gold with the idea it never loses value is the wrong
approach.
• Like any investment or financial asset, gold is subject to supply and
demand pressures that cause the price to fluctuate.

16. What Form of Gold Is the Right Investment for
You?
• Gold comes in many forms, so one may be better suited for your
investment strategy than another.
• You could purchase physical gold coins or bullion, but they must be
stored in a secure environment.
• This may involve paying a broker, bank, or another firm a fee.
• One of the benefits of investing in physical gold is that, if you need to
cash it in quickly, you can.
• However, gold coins and bullion are often sold at a premium and bought
at a discount, so you may not get the market price when you do need to
sell.

17. What Form of Gold Is the Right Investment for
You? - I
• Investing in gold securities is similar to investing in any other
security, except prices may move with the stock market.
• For example, if you are investing in gold mining companies, the
price of the stock may reflect the company’s financial health and
market position more than the price of gold.
• This can create a false sense of security if you are using it as a
hedge against risk.

18. When Should You Buy Gold?
• Many proponents of gold suggest it is a good hedge against rising prices.
The facts do not support this statement though.
• Gold is often a better hedge against a financial crisis, rather than a hedge
against inflation.
• In times of crisis, gold prices tend to rise. But that is not necessarily the
case during periods of high inflation.
• If there's a financial crisis or recession on the horizon, it may be wise to
buy gold.
• However, if the economy is in a period of high inflation, it may be wise to
pass.

19. When Should You Buy Gold? - I
• When investing for retirement, you need an investment that either
generates current income or is reasonably expected to appreciate
in value so you can sell it in the future and use it for consumption
purposes.
• Gold is not an investment that you can rely on for either of these
purposes.
• Also, keep in mind that if you have gold in a retirement account like
an IRA, there may be penalties for early withdrawal if you decide to
sell that gold and cash out.

20. GOLD, 'THE ULTIMATE BUBBLE,'
HAS BURST
GOLD PRICE & VALUE

21. THANKS FOR
LISTENING
GOLD, 'THE ULTIMATE BUBBLE,' HAS BURST