About me: I am a newbie to this forum. Have been a retail investor on ASX since early 2009, right after 2008 Global Financial Crisis (GFC). My portfolio is very diverse and I have been researching in the precise metal, gold, for a number of years now. Basically, would like to share some of my in-depth knowledge that I have learnt along the way and am happy to receive criticisms.
Gold: Gold is a precies metal, chemical formula of Au. Its current spot price sits at U$1333/oz. Gold serves as a universal safe haven asset, what this means is that, when GFC kicks in, gold price will surge drastically due to serving as a protection of investors' assets. Similarly, when global markets are performing exceptionally well, gold price will fall as investors are cashing out in a bid to invest in other shares (technology, IT, healthcare and etc) to obtain a better return. Of course, gold plates/jewellery demands from India and China can exhibit a positive influence on the spot price. Based on my knowledge, it is typically a short term effect as gold is not a consumable like petrol but a pricy asset so you simply do not have the money to buy gold on a daily basis.
Gold versus USD: Conventionally, gold and USD are served as universal safe haven assets. So, in theory, during a volatile market, gold and USD will surge drastically. However, you need to bear in mind that USD after all is a currency where it is governed by US federal government, I still remember when US's economy was on the verge of a financial meltdown due to enormous debt ceiling that is worth trillion of dollars, all US government did was to PRINT MORE NOTES!!! Thats right, more notes! Case closed. So notes printing will result in currency depreciation. So for me, gold is the only universal safe haven asset.
In what situations can gold spot price surge drastically? and why?
1. Demand from gold jewellery. Nice and simple but this is not sustainable and effect is short term.
2. Political uncertainty: Most recent case is Brexit where UK citizens opted to leave the European Union resulting in a series of problems such as work right issues from other EU countries, business operations between the UK and other EU countries. The panic can cost a drastic surge in gold price where gold price was moved from U$ 1260/oz to U$1330 in a matter of seconds after the imminent Brexit announcement.
3. Global economy outlook: Global economy is driven by US, China, Japan and Europe where any of these countries will have immediate impact on ASX. China plays a very important role as a leading contributor to the global share and property markets. China has published an amazing growth of more than 10% in GPD reports between 2004-2009 and its economy has slowed down around 5-6% GPD this year. This implies the demands for major raw materials have come to a stall and we are experiencing oversupply issues where this will lead to a market correction eventually. i.e. GFC.
So whats happening right now?
GFC would happen imminently if one of these could not be rectified properly:
1. Brexit: This would affect free trade policies between the UK and EU countries, immigration, work rights between EU countries and etc. Due to the uncertainties, big corporates would be hesitant to headquarter in the UK leading to a chaotic market condition. So it would take time to stabilise the trades between the UK and EU. During these periods, corporates would be opting to reduce the risk of losing money, i.e. putting expansion projects on hold => demands for commodities decrease => supplies increases => if politicians could not produce a functional solution, this would result in a GFC
2. China: China has two securities exchanges that enable shares trading, in 2014, both markets produced remarkable returns on every sector. But in 2015, all the gains from 2014 were completely wiped out where Chinese government literally pumped in awful lot of money to stabilise the markets. Chinese markets have been volatile and outlooks remain ambiguous.
At the very moment, all major property markets have been stagnating since 2015 so developers are struggling to sell their off-the-plan projects. Some developers have been repaying hundreds of thousands of interests on a monthly basis for half a year now, and some constructions have been put on hold. This implies Chinese developers are cash strapped.
Either of these would result in uncertainty and a spike in gold price. So a listed gold producer would produce a positive return.
So let me know if you agree with me
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