Everybody thinks of survival and safety of own capital in the times of crisis. Where should one invest own money in dollar or real estate? Maybe in gold? These questions have become subject of anxiety.
Gold is the answer for European and North American investors (not only for them). Gold is a precious metal that never loses its value and it successfully stands inflation. Investors are well aware of this. Consequently, price of gold and demand on it is increasing catastrophically. The price of one ounce of gold at world exchanges was $800 before Christmas in 2008. About year after, in November, this precious metal beat historical record. The price of gold at Asian market increased by 0.9 percent on Nov-17 and made up $1128.78 per ounce. Price of ounce of gold at New York exchange made up $1129. Gold has never been so expensive. Experts are explaining this by devaluation of USD at monetary markets. Specialist note that Hong-Kong is anxious to become important player at gold market in Asian and Pacific Ocean regions and this encourages existing situation. Price of gold has increased by 29 percent since the beginning of 2009. Experts suppose that fall of dollar exchange rate is still possible. This induces central banks to fill up gold reserves parallel to increase of prices of gold and demand on it. Analytics are declaring that this metal is still very profitable and remains an uncompetitive investment. The price of one ounce of gold decreased to $700 in the beginning of 2007. The reason of this was fall of stock price at stock exchange and not cheapening of gold itself.
The picture was radically changed in spring 2008 and demand on gold is growing day by day. This is a market response to global crisis and economic disturbances. In the times when saving such as bank deposits become unstable and less profitable, many people give preference to gold as it is an alternate source of saving money.
Leading gold miner companies declare that mining of gold will decrease within next few years. However, global mining of gold in Indonesia will be increased by 3.7 percent, up to 2052 tons, this year. But experts think that this will be just a temporary happening and not a trend of long-term growth. Increase of gold mining in any long-term period will be “artificial” and connected with accomplishment of the project with small profitability under conditions of high prices. Reserve base is running down in quality and quantity. This is especially reflected in Southern Africa that was biggest producer of gold in the world up to 2007.
When talking about gold, of course we mean its investing attractiveness and not its value as jewelry. Investors are investing money in coins and bars of gold instead of securities. Bankruptcy of credit organizations is not excluded, thus the money invested via gold could be lost. Trading with futures contract is not as reliable as owning of this precious metal.
We spoke with Giorgi Rusiashvili, Doctor of Economics on these issues.
Giorgi Rusiashvili: Investors are very active today at gold market. Price of gold is increasing and even more advance in prices is anticipated. Price of ounce of gold was $1100 in Nov-11. Today’s forecasts tell that the price might even increase up to $1300. Central Banks have changed their tendencies and became buyers of gold instead of selling it. For instance, Central Bank of Russia is increasing gold reserves. India purchased big amounts of gold from International Monetary Fund. Only thing we are left to do is to consider these facts and not to relay on paper money, as it is quite risky.
G.E. – Is it possible that gold prices reach $2000 in nearest future?
G.R. – bold prognoses about gold price are often heard with upcoming of 2010Y. India has bought 200 tons of gold for $6.7 billion from International Monetary Fund. Gold has become a good mean of capital investment both for rich people and for those who have whole life ahead. Strategic investors started to buy gold mines. For instance, big investor Jim Rogers is sure that gold price will double and amount $2000.
G.E. – Is demand on investment coins increasing either?
G.R. – The more insecure the value of paper currencies becomes, the more popular investments in precious metals will be. National Banks are issuing golden coins for capital investment in gold. Investment coins are of special interest for investors. Investment coins differ by gold constituency, value and price. The price of coins is mainly defined by the price of gold itself. Interest toward coins especially increased during financial crisis. There is a broad variety of investment coins. The first golden investment coin was produced in South Africa in 1967Y. Golden coins have more price and values compared with bars of gold. Famous investment coins are: “Krugerrand Coin” (South Africa), Maple Leaf (Canada), Vienna Philharmonic Orchestra (Austria), Kangaroo (Australia), Panda (China), American Eagle (USA). Spanish company Securitas Aurum is selling all these coins. Company is not trading with any type of coins. It is selling highly demanded investment coins. Price of investment coin mainly depends on the price of gold raw materials. The origin country of raw materials is also considered. Other important factors are popularity of a coin and in what quantities is it produced. There are three ways of buying golden coin at Securitas Aurum electronically. One thing is common – the company offers only gold packages to the amount of 4,800.00 euros. The customer receives his gold coins within 14 days after receipt of payment. The second option is a so-called “flexible payment in installments”, with an advance payment of 100 euros. The remaining sum has to be paid within a period of 12 months. However, the option to finance one’s gold by means of recommendation to other customers is the unique thing about the company. Also in this case, the customer has to make an advance payment of 100.00 euros. The recommendation to other customers and their recommendations enable the customer to “recommend” the gold price “to each other”. In case, this does not work, the sales contract can, of course, be changed to standard payment in installments at any time.
G.E – Why is it so profitable to invest in precious metal?
G.R. – People always strive for stable means of investment and gold is the test way in this case. There are several reasons for this. For instance in contrast to other markets (real estate, stocks and bonds), initial investments and big capital are not necessary to enter market of precious metals. At the same time, stable high price of gold is defined by several reasons: it is not obtained easily, its amounts in nature are scarce and it cannot be produced from other materials; it is easy to make jewelry and various items out of gold. Another important factor is that it is almost impossible to falsify this precious metal and it’s very easy to check the quality.
Economic cataclysms, hostilities and advance in oil prices caused increase of price of precious metals in XX century. This tendency has not changed in XXI century either. What is today’s picture? – Bankruptcy of world’s giant companies, destabilization of dollar exchange rate and frequent fluctuations in oil prices. Precious metals, especially gold is valuable in the times of hardship in an economy. Gold will always have advantage to any currency as any currency in the world, might this be dollar or euro, belongs to some state and has a power on some limited territory. Gold is universal, it has no borders and it is valuable at any time and any place.
G.E. – What are the prospects of gold market in Georgia?
G.R. – The price has reached record breaking point in the recent period. The price of gold has increased by 29 percent since the beginning of this year. Investors are still staking on gold as dollar is unstable and economic risks are very high.
G.E. – There is conformity to economic laws – growth is always followed by slump
G.R. – look throughout the history, the prices of gold are steadily increasing and inverse process has not takek place yet. Gold was, is and will be the only most reliable instrument for saving own capital in medium and long-term perspective.
G.E. – What can you say about Securitas Aurum, which will soon enter Georgian market?
G.R. – This is a consulting – brokerage company that works in the field of gold investments. The company has own principles: We can give you an opportunity to make your dream come true, but we cannot give you a dream itself; we can show you what to do, but we cannot do it instead of you; We can show you how our system works and what are its advantages, but you are the one to achieve the aim; we can tell you about people who have already achieved their goal, but we cannot do it for you as you are the one who must do this in order to change your life to better. But you are the one who should start this. If not now, then when?
National Bank of Georgia is issuing investment coins also. At the order of the National Bank of Georgia the first Georgian investment “Golden Fleece” coins were produced by the Austrian Mint. Six different sizes and weights of these coins were minted in 2006. The smallest one weighs 3.1 g; the largest one – 311 g. Investment coins are available for sale at the Money Museum of the National Bank of Georgia and its regional branches. The National Bank of Georgia establishes the selling prices of 1000, 300, 100, 50, 25 and 10 lari denomination bullion coins on a daily basis according to the price of gold set by the London Bullion Market Association. The price of investment coins of Georgia has doubled since Nov-2008. (see table 1 and 2).
The part of the companies operating at Georgian jewelry market is declaring that despite advance in gold prices at the world market, the price of gold in Georgia will not change. Management of jewelry shop network Klondaik declared in an interview with information portal commercant.ge that the prices of golden articles remain the same within the next month. They admit that gold price is increasing minutely, but the company is trying not to increase the prices and not to lose clients. The price of 1 gram of gold in the company is GEL 75 and above. Another jewelry company – Cristal is not going to increase price of their products either. The price of one gram of gold in the company varies from GEL 55 to 90.
Popularity of gold is nice of course, but a question arises – to what extent economic development might benefit or lose out of this. Foreign experts are divided in two confronting opinions. The part of the experts have negative attitude towards golden boom and reckons that increasing demand on gold and investing will be disadvantageous for economic development in a long-term perspective. Bars of metal cannot increase economic activity and cannot improve living standard, say the experts, – investors are thinking about safety of own capital, nobody cares for risky ventures or just doing business. But it is impossible to create jobs, new technologies and innovations without abovementioned. Those experts, who have negative attitude toward unprecedented popularity of gold, hope that this is just a short-term tendency and soon investors will direct their funds to the activities that can ensure economic development and improvement of living standards. However, so far decisive factor for investors in decision-making process is the self-protection mechanism and not anxiety for future profits. Consequently answer to the question – dollar, real estate or gold – is logical: until banking system and financial sector, together with construction industry does not stand on their feet, confidence in these sectors is very low and thus the most reliable investments seems to be gold.