Gold Price

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Is Gold Still A Good Investment?

Gold bars are one of the things people think of when they imagine wealth or treasure. Gold is known all over the world for its value and history, with wars having been fought and lives lost in its pursuit.

Today, gold remains valuable for a variety of reasons, with many investors still seeking it out. Just look at the 24-karat gold bar price in Canada to see how it is still prized. But is gold still a good investment today? Why are people putting their money into it?

Here are some reasons to continue to own gold today.

It Holds Its Value

Paper money had fluctuated considerably, as have other assets. Gold, however, has maintained its value through the ages. Some have passed gold down through their families for generations, whether as jewellery or in some other form.

Gold will not corrode, and it can easily be melted and reworked to give it new life in new forms. It is also beautiful.

A Hedge Against Inflation

Gold tends to rise in value with the increase in the cost of living. As such, it makes an excellent hedge against inflation. In years of high inflation, gold has increased dramatically in price while the stock market plummets. Gold is viewed as a good store of value. Because of this, when the local currency is struggling, people may turn to gold to protect their wealth.

Protection Against Deflation

Gold is also a means of protecting oneself against deflation. Although deflation—defined as business activity slowing, prices dropping, and extensive debt arising—has not been seen on a very large scale for the better part of a century, gold is considered good protection should it occur. During the Great Depression, for example, the purchasing power of gold grew tremendously, and so for many, gold became the best place to store their wealth.

Decreasing Supply

The supply of new gold has been in decline during the 2000’s, with a large portion of gold in today’s market coming from global central banks. As is often the case, diminishing supply leads to an increase in price. Gold can be expected to increase in value.

An Increase in Demand

Going hand-in-hand with a decrease in supply, there is an increase in demand. In many emerging market economies, gold plays an important part in the culture. India, for example, is one of the largest consumers of gold, where it is valued not only for jewellery, but several other uses as well. The highest global demand for gold occurs in October, which is the Indian wedding season. China has also been seeing a steady demand for gold.

Investors have been increasingly turning to gold as well, seeing it as a worthy class of investment.

These are just some of the reasons to consider gold as an investment. The price of 24-karat gold bars in Canada can be expected to rise, so choosing to invest now is an excellent means of preparing for the future.

When Is A Good Time to Sell Gold?

Virtually everyone who owns gold has wondered at one time or another if they should sell it. It may be out of need for quick cash or any number of other reasons. If you are considering selling your gold, you should be aware of your options. Your first step should be understanding what it is worth, and when is a good time to sell gold in Vancouver.

How Much is it Worth?

Gold has been used for thousands of years, whether as a means of trade or to store and protect your money. Its value has fluctuated however, making it difficult at times to know when the most opportune moment for selling has arrived.

The exact value of your gold can vary from day to day and even from hour to hour. The amount is based on several factors, including supply and demand, inflation, or deflation. The price is also impacted during times of economic uncertainty.

Is This the Right Time to Sell?

Owing to the number of factors affecting the price of gold, predicting its future value is extremely difficult. For that reason, when the question of when to sell gold is asked, the simplest answer that can be given is that you should sell it only when you are in need of the money it would bring you, or when you simply no longer want to keep it.

It is also possible that you might wish to sell your gold for another reason: keeping it may, in a sense, be costing you money. Consider the fact that you might be able to sell your gold and take the money you receive to invest in more lucrative investments.

In essence, while owning gold is a great way to protect your wealth, selling it may be worth considering if you wish to invest in something that you anticipate will offer a greater return or if you want to put the money to use in other ways. This may include anything from a long-overdue vacation to applying it toward a large purchase like a car.

Where Can You Sell Your Gold?

You will likely find no shortage of potential buyers for your gold, but you would do well to do a bit of research. You will want to deal with a buyer that has a good reputation and is known for their ethical and professional conduct.

At Canada Gold, we are accredited by the Better Business Bureau and take pride in our reputation as a trusted gold dealer. We take our position seriously and work hard to be worthy of your business. And with our 120% Best Price Guarantee, you can be sure that you will/ be receiving the most money possible for your gold.

When it’s time to sell gold in Vancouver, it’s time to visit Canada Gold.

What we pay for your gold

We believe that having the right information and knowing what your gold is worth is the most important thing to know when deciding to sell your gold. Used and second-hand industries – from pawnshops to used car lots – have a bad reputation when offering a fair price for gold and we believe this comes from the imbalance of information between dealer and seller. The dealers often know much more about their product and it’s true value than their customer. This often results in the dealer using that knowledge to their advantage and offering the lowest price they can. If you go into a pawnshop you might expect to get a low offer and negotiate from there.  So, if they initially offer you $100 and you settle on $150 you might be very happy at first… until you learn that they would have been willing to pay $300 if needed.

We want to be a different kind of business and earn your trust with transparency and honesty by always offering a fair price. Here is how we aim to do that:

  1. We share our payout percentages here to make it easy for you to understand our margins and “what’s in it for us”.
  2. We list our gold prices online for what we offer on all gold jewellery on an up to the minute basis so you are never surprised.
  3. There is absolutely no pressure to sell and no costs for testing to make it easy to shop around.

Where Does the Money Go: Our 2017 Gold Purchase Audit*:

91% – Payouts for their gold made directly to our customers. We pay a minimum of 80% on all scrap jewellery and much more for bullion, premium jewellery, and large amounts of gold. In 2017, our average payout for refined gold was 91% of the market rate of gold.

4.8% – Wages, Rent and Overhead.

2.7% – Marketing and outreach

2% – Profit

0.5% – refining cost

Our business is based off volume and we help people cash out on millions of dollars of gold every year. We strive to keep our costs as low as possible while still offering the highest level of expertise and a safe place to sell valuables.

Other businesses that pay less often have much lower volumes and much higher costs per dollar of gold they bring in.

Is Now the Right Time to Sell?

Our prices over time are based on two factors: the current market price of gold, and our percentage payout.

Market Price

In terms of the market price for gold, as of early 2018, we are at about $1700/oz which is way above the long-term average and over 90% of the all-time high reached in 2012 of around $1800/oz. So, based on past gold prices, this is one of the best times to sell. Projecting forward is much harder and at any given moment you can find lots of varied opinions on whether gold prices and going to go up or down. We never try to time the market with our sales and refining, but we have lots of customers who keep a close eye on what’s happening with gold price to decide when to come in.

Our Payouts:

When we opened for business, gold was around $600/oz (compared to around $1700/oz as of May 2018) and our prices started at 73% of spot price for scrap gold – which was significantly over the industry average of 40%-50% offered by most local and mail-in buyers. As we have grown, higher volumes and better testing have allowed us to raise our starting and minimum prices to 80% of the market value in our gold. In addition, we now pay much higher prices for premium items such as bullion, coins, jewellery with diamonds, brand name items, and large purchases. Factoring in all gold purchases, our average cash for gold payout was 91% of spot price in 2017 – our highest payout percentage ever.

Do you pay the most?

A quick google search will find lots of articles like this one that show that most gold buyers across the industry pay between 30-60% of the market value for scrap gold. In Kiplinger.com’s post, one buyer even offered 9%! Canada Gold offers a minimum payment of 80% of the spot price of gold in Canada, and higher for bullion, premium items, and larger transactions. In many areas, our prices are the highest advertised price out there!

Obviously, the advertised price is not everything though, and what really matters is getting the highest actual offer for your gold. Differences in how the metal is tested (the composition of the gold, any subtractions for stones, etc), fees and minimums, and the occasional dishonest dealer –  we recommend checking with the Better Business Bureau – make it much better to actually compare offers for your gold rather than just the listed prices (warning though – if the dealer does not list a price or won’t tell you over the phone what they pay they almost always offer very low rates). We are very confident that the offer you receive from us will be the highest, and if you do receive a higher offer we will beat that price by 120% of the difference.

Higher payouts lead to more business, more referrals, and more happy customers!

Do all items get melted down?

While most of the gold we buy does get melted down, about 5% of the items we see do actually get polished, repaired and resold. By buying gold with the intent to resell, we are able to offer higher prices for these items. We also buy and resell diamonds and bullion.

Here are some of the things we consider when determining if an item can be resold – and a premium price offered:

  1. Are there any diamonds in the piece? We always pay a higher amount for items with diamonds.
  2. Is the piece from a brand name like Tiffany or Cartier? Again, we always pay a premium for high-end brand name items.
  3. Is there a resale market for this item? Items that are still in style and purchased in the last few years, antique jewellery, and staples (diamond studs, eternity bands) are the most likely to fit into this category.
  4. How heavy is the item? While we pay a premium price for heavier jewellery, often this gold was purchased and popular when the market value of gold was much lower and the piece more affordable. Heavy jewellery (chains etc.) are usually melted downs. Smaller pieces with a high degree of craftsmanship and intricacy are more likely to be resold.
  5. What kind of condition is the item in? While we do repair many pieces before reselling them, this does add to our cost. Some items move from the online store to the melting pot based on condition.  

If you want to get a fair price for your gold, visit one Canada Gold’s locations in Vancouver, Surrey, North Vancouver, Richmond, Hamilton, Ottawa, Calgary, Edmonton, Toronto, Ottawa, or Halifax, find one of our nearby locations here. Canada Gold is accredited with the Better Business Bureau and is an authorized DNA dealer for the Royal Canadian Mint.

 

*This breakdown is based on our gold purchases we refine in aggregate (so does not include items we resell like bullion or premium jewellery). Individual transactions range from payouts of 80% to 99.2% of market price. If broken out, smaller transactions would have a larger percentage of value going to wages and overhead and profit, while still returning 80% to the customer. Larger transactions paying over 91% would obviously be the opposite!

Buy Gold Recycle

Gold Recycling

In tandem with gold supply falling 2% in 2014, gold recycling levels have also decreased to their lowest levels in 7 years. (Highest levels seen between 2009 and 2012). In 2013, gold recycling fell 11%.

What this means? According to World Gold Council: Gold Demand Trends Report 2014, gold recycling will remain low and will likely continue to decrease because of recent surges in gold demand in China and India. In other words, because of gold recycling contributes a significant percentage of gold supply, with the increase in demand flushing out gold supply, channels toward gold recycling are tightening. This is an interesting observation mainly because in a later report by World Gold Council drivers of recycled gold supply were its ability to a) increase over time, b) economic crisis, and c) changes in gold prices. While these are undoubtedly true, we are also seeing how gold demand is stemming some drivers (a & b), and reinforced by others (c).

Nonetheless, gold recycling remains to be an important contributor to the overall supply of gold, and a fascinating topic to those analyzing the gold market. Of the 4278.2 tonnes of gold supplied in 2014, gold recycling made up 26% at 1172.7 tonnes. This number is a a lot higher than most people realize, and although gold mining still supplies most of the world’s gold, recycling helps balance the gold market by alleviating some of the pressure off of the mining sector to supply gold demand, which was 3923.7 tonnes in 2014. In addition, one has to consider that, the environmental (as well as production) costs are far, far smaller than gold mining. In an article on Bullionstreet.com, they cite that environmental groups who focus on the environmental degradation of gold mining say to mine an 18k ring leaves behind 20 tons of ore and rock waste.

Countries with high demand vs. their recycling (2012)

India: Demand vs Recycle: 864.2 tonnes vs 113 tonnes

China: Demand vs Recycle: 817.5 tonnes vs 120 tonnes

United States: Demand vs Recycle: 161.8 tonnes vs 129 tonnes

Italy: Demand vs Recycle: 23.5 tonnes vs 123 tonnes

The four countries listed are the top 4 countries leading in gold recycling, however, the demand in China and India far exceeds their recycled supply, thus relying on gold mining and imports from other countries. Together, China and India make up over 40% of the world’s demand, yet they contribute roughly 20% of the world’s recycled supply. In other words, to meet the current demand for gold, the world still heavily relies on gold mining, while, at the same time, gold recycling wanes because demand implies “buying”, thus people aren’t selling to recycling companies. This creates an issue for recycled supply because if people aren’t selling gold to be recycled, then the recycling supply cannot keep up with growing demand. We see this most starkly in 2014 when prices were low, encouraging buying (increase in demand) and discouraging selling (decrease in recycled supply).

 

As much as there is an environmental upside to gold recycling, it is firmly dependent on the price of gold, and global supply and demand. Another factor which affects the recycling supply is the duration of which gold is held, especially jewelry. Disregarding intrinsic value and its relationship with the gold prices, sentimental value and religious significance keeps gold off the trading table. Considering that 90% of recycled gold is high value gold, according to World Gold Council’s The Ups and Downs of Gold Recycling article posted earlier this year, the time it takes to sell gold jewelry and reluctance on the part of the seller certainly does not stave off growing demand. Recycling supply is forced into a waiting game with its only incentive to offer are gold prices, which, if they are low, hardly is enough incentive for sellers.

Nonetheless, there are opportunities for recycling gold in industrial supply materials, such as electronics, making up 10% of supply. This is low compared to high value gold, but there is room to grow and has, in fact, doubled in the last ten years. While it has been known that electronics contain precious metals, the belief is that it is difficult and expensive to extract them for recycling. Between 15 and 20% of precious metals are recycled from electronics, the rest are thrown out. However, technology is developing to make extraction simpler and cost-effective, as well as advertised appropriately to encourage people to recycle their electronics more so in our electronic/mobile heavy society. In 2012, 400,000 tonnes of industrial waste was available for recycling, and is expected to grow to 2,000,000 tonnes by 2025. When we think that gold recycling is currently capturing 15-20%, that is a lot of recycled gold to potentially miss out on.

Overall, for gold recycling companies, whether it is for high value gold or industrial gold, there are pressures as well as opportunities. Low gold prices coupled with high gold demand in the East is diverting the attention of producers and sellers away from recycled gold which continues to give mined gold an important place in the supply side of the market. On the other hand, industrial waste is an avenue that gold recyclers can capitalize on as confidence grows and extraction methods develop.

History of High Gold Prices

Before the Climb: a brief History of Gold Prices.

First, a quick look at what gold was going in the decades leading up to the climb of the 2000s.

For twenty years starting in the early 1980s, it was not a very pulse-pounding time to be a gold investor. Gold Prices were hovering around $300/ounce, but no real gains or losses were made. The 1970s though had been an exciting decade for gold with the end of the gold standard (pegging gold to $35/ounce) in August of 1971 allowing gold prices to move freely for the first time. Amid strong oil prices, high inflation and geopolitical concerns, gold prices took off and prices shot up to $850/ounce (correcting for inflation that would work out to over $2000/ounce in today’s dollars). Then the bubble burst and, after a bumpy ride for a couple of years, prices levelled out around $300 with very little action.

In the short history of freely floating gold prices, the rapid rise and fall of value in the 1970s demonstrate that the prices can be quite volatile and the stagnation in the 1980s and 1990s demonstrate that prices have not always been rising.

My colleague Gregory Neilson recently shared his thoughts on the inflationary pressure that is affecting gold prices, you can read his blog post on gold prices here.