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Physical Gold vs Paper Gold and the Impact of the Blockchain

As we’ve seen throughout different eras, gold has historically acted as an effective hedge against inflation, currency devaluation and broader uncertainty. In this light, it is no surprise why the yellow metal is doing so well at the moment.

If you’re thinking of buying gold, there are many ways to do so, from exchange traded funds (ETFs) and futures (otherwise known as paper gold), to investing in a gold mining company’s stocks and shares, or actually buying physical gold bullion. In this article, we explore your options and how blockchain can add an extra layer of security and confidence to gold purchases.

Could it be time to buy gold?

The price of gold has been subject to various ups and downs in April, driven in part by inflation reports and the war in Ukraine. At the time of writing on 14th April the gold price sat at £1,503 per troy ounce. But the price in April has been as low as £1,463 and as high as £1,518.

Price fluctuations like these are worth keeping an eye on when you’re considering buying gold. Just a few days can make a big difference in your purchase price. Save our gold price chart to your bookmarks and have a look each morning to see how things are developing; staying informed on a daily basis can help you to understand the market you’re buying into.

Once you’re happy that you have an eye on the current trends, it’s time to decide how you want to buy gold. The big decision to make is whether to buy physical gold or paper gold. Let’s look at the options.

What is paper gold?

Paper gold is a way of describing a derivative of the gold market. It could be an ETF or gold futures, or gold futures wrapped up in an ETF.

An ETF is a fund that is usually built to focus on a specific segment of the financial markets such as stocks and shares or commodities. Obviously when we’re talking about paper gold, we’re talking about ETFs that track gold as a commodity.

If the fund has exposure to gold, it will be in the forms of shares in gold held by banks, or most commonly, gold futures. A gold future is a promise to buy or sell gold at a specific price on a specific date.

What’s the difference between physical gold and paper gold?

The biggest difference between paper gold and physical gold, most often cited by proponents of the latter, is that physical gold has intrinsic value. Physical gold is in demand from manufacturers of electronics and jewellery, not just investors.

This is in contrast to paper gold, particularly futures, which are driven by the whims of market speculation.

The other, more obvious difference is the fact that when you buy physical gold, there is a tangible asset in your possession. It’s much more straightforward to realise its value than that of paper gold where you are only in possession of a certificate or share that has not yet been ‘cashed in’ for actual gold.

Physical gold vs paper gold

Physical gold Paper gold
Physical gold has intrinsic value as a scarce commodity used in manufacturing and luxury products around the world. Paper gold has no intrinsic value; it’s only worth what the markets say it’s worth at any point in time.
When you buy physical gold, your investment is tangible and easy to verify. When you buy paper gold, you are at the mercy of a third-party to verify and take care of your investment. The ratio of traded gold to physical gold is in the region of 200 to 1, which tells you how much risk there is in the paper gold markets. What would happen if everyone wanted to realise their paper gold investment at the same time?
With physical gold, you are responsible for arranging secure storage, whether that’s in a safe under your control or in a high security storage location, such as that offered by The Gold Bullion Co. With paper gold there is no need to worry about storage.

Making smart choices when you buy physical gold

Whichever route you take to buy gold, it pays to research the market. If you’re buying physical gold, look for a seller with a strong track record and experience with good reviews from other customers.

You want to know that what they are selling is as described, particularly when it comes to the purity of the metal in question. Unfortunately, there are still some dubious characters operating on sites like eBay who will try to pass off gold-plated items as genuine bullion. As with anything in life, the best way to avoid this is to ask yourself ‘is this price too good to be true?’.

More recently, blockchain technology is creating new standards in the industry to validate the origins of each individual piece of bullion. A blockchain is a digital decentralised public ledger, which stores information in such a manner that it is impossible to forge or alter.

While the technology first sprang up in the world of cryptocurrencies, its range of uses is rapidly expanding. One of the most interesting new applications is the validity of supply chains.

The gold industry is now getting involved to use blockchain technology to improve the process and safety of purchasing gold by recording every step in a gold bar’s life-cycle from mine to vault.

This will ensure that gold bars with a false LBMA stamp do not end up in top bullion vaults. In other words, blockchain can guarantee that the gold you purchase originates from a legitimate and ethical source.

Buy gold bullion with the Gold Bullion Co

Are you interested in transferring your cash assets into physical gold? At Gold Bullion UK, we have a range of gold coins and bullion bars. So, whether you’re a seasoned investor, or starting out on your journey, we can help you choose from a selection of weights and styles.

Some of our most popular products include:

Coins Bars
Gold Britannia coins 1 gram gold bars
Gold Sovereign coins 1 ounce gold bars
Silver Britannia coins 1 kilo silver bars

If you have any queries relating to the process of investing in gold, feel free to contact us today, and we’ll be happy to help.

Article Last Updated: Thursday, April 14, 2022

Central Banks, the Power of Gold and the Ukraine-Russia Conflict

A safe haven metal for central banks and individuals alike

Gold is widely regarded as a safe haven metal. In contrast to stocks or bonds that carry counterparty risks, gold is a singular asset with the only influences on its value being the demand, the value of currency and the desire to buy gold as a hedge against inflation and currency devaluation.

Central banks have seen the economic benefits that gold yields for a long time. A testament to this is that they now hold more than 35,000 metric tonnes of the yellow metal, around a fifth of all the gold ever mined. The price of gold is continuing to rise, and the combination of higher energy prices, grain prices and base metal prices has resulted in inflationary pressure and a cost-of-living crisis in the UK that supports the demand and upward trend of the price of gold.

In times of crisis and global uncertainty, investors favour putting their money in a tangible asset rather than opting for stocks and bonds. And not only individuals make the switch from investing in corporations to storing their finances in gold. Central banks do it too. To be clear, a central or reserve bank is an institution in charge of the currency and monetary policy of a state or monetary union, which also oversees their commercial banking system. Unlike a commercial bank, central banks have the power to alter the monetary base by printing more or less money.

Demand for gold amid conflict and human suffering

Amid the Ukraine-Russia war, demand for gold has soared as global markets have responded to the high levels of economic instability surrounding the conflict between these two countries. You can see the current price of gold on our Live Gold Price Chart. Central banks have already been dealing with historic economic turmoil and will now assess how Russia’s invasion may further destabilise markets.

The plight of Ukraine and the level of human suffering is well summarised by the tragedy and destruction that surrounds the city of Mariupol. The situation in this city has been described as the most urgent humanitarian crisis in the world since Russia invaded Ukraine on 24th February 2022. There is virtually nothing left of Mariupol, and hundreds of thousands of residents are said to be trapped inside or underground with constant shelling threatening their lives. This paints a powerful picture of the human suffering and political turmoil driving the price of gold ever higher.

Soaring energy prices: the impact of Putin’s plans

But what is driving the economic uncertainty, and which factors are indirectly causing central banks to buy more gold? In short, the Russia-Ukraine conflict has impacted the UK economy drastically and is also inhibiting the functioning of supply chains for goods that both countries produce. Meanwhile, the UK inflation rate has risen as high as 5.5%, far from the Bank of England’s target of 2%, as the global economy reawakens after two years of Covid disruption.

Gold also has an inverse relationship with the U.S dollar. When the value of the dollar falls, the price of gold typically rises, allowing central banks to protect their reserves during times of market volatility.

Along with several other countries, the UK has imposed bans on Russian oil purchases following the invasion. This has led to a narrowing of available supply at a time when energy prices are already rising dramatically. Several global brands have also pulled out of Russia, causing further economic volatility.

Russia supplies around 40% of the gas used in the European area and is the world’s third largest producer of crude oil after the USA and Saudi Arabia. This will contribute to the high risk of a continuing economic slowdown. Coupled with inflation, this will encourage investment demand for gold from both individuals and central banks. On 7th March, oil prices had risen 9% since the beginning of the month, reaching above £75/barrel for the first time since 2014.

More than just energy - food and metal prices rocket

Russia is also a key producer in other markets, apart from energy, such as food and metal. Both countries involved in the conflict provided almost 30% of global wheat exports, and Russia was responsible for delivering 16% of the world’s fertiliser. This is adding to the upward pressure on food and metal prices, feeding inflation, a rise in the prices of goods and services. In this case, as a result of the increasing cost of commodities.

When the price level goes up, each unit of currency has weaker purchasing power and this is exactly what is happening in global economies.

Gold as a route out of the storm

As a result of the inflationary pressure that has come about, central banks are printing more money to support their economies. This increase in money supply may be necessary to ease economic turmoil, but the negative impact for the UK is the devaluation of the pound. Gold, however, is a finite and tangible commodity whose supply can’t be added to very easily. In a bid to reclaim some of the gold in circulation, The Royal Mint has announced a plan to turn recycled gold into an exchange-traded commodity. Because gold is such a finite commodity, it lends itself as a great hedge against inflation and is a core reason why the demand for gold from central banks is rising. Incidentally, interest rates, the traditional lever of monetary control, have been negligible for over a decade. However, The Bank of England has increased interest rates to 0.75%, bringing it back to the pre-pandemic base rate to tackle rising inflation.

In summary, the inflationary pressure we are experiencing is limiting the ability of traditional stocks and bonds investments to act as a safe-haven asset in portfolios. This may further boost interest in gold as a diversifier. Historically, gold has been the answer during times of global uncertainty, economic instability, and high inflation. And it looks like it’s set to continue this way. One thing is clear. Gold has historically been an effective hedge against market volatility and risks.

Buy gold today: Coins or bullion bars?

If you’re looking to do the same thing as central banks and invest your cash assets in gold, at The Gold Bullion Company we have an extensive range of both gold coins and bullion bars. Gold bars can be a discrete investment which can easily be stored in a secure safe. A key benefit of gold coins is their historical significance, which makes them extremely collectible and the added bonus is that UK gold coins are CGT Free.

Contact us today to discover why investing in gold could help you maintain your wealth.

Article Last Updated: Monday, March 28, 2022

Gold and the Russia-Ukraine conflict

The gold situation in summary:

The gold price has historically risen during times of uncertainty and political unrest. War is the pinnacle of these two factors, so the situation in Ukraine is having a wide-reaching impact on the gold price.

  • The price of gold rose around 7% in February; a substantial monthly gain.
  • Gold’s trading high this week has been at a rate of £1,478 per troy ounce.

The gold price has historically risen during times of uncertainty and political unrest. War is the pinnacle of these two factors, so the situation in Ukraine is having a wide-reaching impact on the gold price.

The assault on Ukraine, ordered by President Vladimir Putin, in the early hours of Thursday 24th of February, was one of the most prolific attacks committed by one state on another in Europe in recent years and there is widespread concern over the scale of the conflict.

As things stand, the situation is getting worse. There have been reports that several cities within the country of 44 million people are under siege. This is a sobering fact, and with this information in mind, the consequences to human life and the global economy are likely to increase as the political situation unravels before us. World markets have dropped sharply. We must consider that the global market was not expecting a fully-fledged war.

Russia is wreaking havoc. In the wake of this, gold’s trading high this week has been at a rate of £1,478 per troy ounce at the time of writing and looks set to rise further. In short, the conflict between Russia and Ukraine and its path is paved with unknowns – which is one of the elements that tends to maintain and push up the value of gold.

Instability in the global markets

Russian forces have invaded Ukraine from the regions of Donbas in the east, Belarus to the north and Crimea in the south. The country is at war, sirens are ringing in the capital city, and there is a mood of fear overshadowing the country. The most poignant repercussions of this conflict will be human suffering and loss and the partial destruction of Ukraine’s infrastructure. Missiles have been launched, and casualties are already building up.

In a more practical light, global crises such as these impact the functioning of the world economy. As we’ve seen before, tensions between countries can push up the price of gold.

For example, in late 2017 and early 2018, gold prices rose in conjunction with geopolitical tensions surrounding North Korea and tensions between America and China. Other examples of when gold flourished were during 2011 when there was a congressional conflict regarding the US debt ceiling. There was also the potential for the eurozone to break up, which further drove demand for investing one’s finances in something independent of sovereign currencies.

Inflationary pressure

With the conflict in Ukraine, oil and soft commodity prices have also risen dramatically. International benchmark Brent crude overtook $100 for the first time in 8 years. These mounting signs of inflation are worth paying close attention to.

In the 1980s, gold rose in value when the Islamic revolutionary regime in Iran encouraged a sense of fear surrounding the partially oil-driven inflation of the 1970s. Indeed, inflation in the 70s was made worse by oil embargoes that caused energy prices to soar, slowing economies down and fuelling inflation. This could be compared to the current demand surge that has come about with the unlocking of the COVID-19 shutdown.

However, the Russia-Ukraine conflict will inevitably affect the price and supply of oil since Russia is one of the most prolific energy providers in the world. Russia is one of the largest energy producers, and both Russia and Ukraine are among the top exporters of grain. There is no doubt that this will cause a surge in prices for exports which will cause an imbalance within individual economies across Europe and beyond.

There has already been a supply crisis regarding energy due to the pandemic. And with current developments, this problem is likely to deepen. Whether it's a conflict or a global pandemic, investors will seek alternative means of storing their finances when stocks and shares prove unpredictable.

Gold has historically performed as a safe haven during times of high inflation. It offers a place to store wealth that has previously held its value, if not increased, during such periods of turmoil.

Safe havens are appealing to investors when volatile holdings such as stocks and bonds, whose value relies on confidence in the harmonious functioning of the global economy, prove unreliable. The price of gold tends to increase as inflation rises and while there is no guarantee that this trend will continue, it has proven itself enough to attract the attention of many investors.

Gold price on the rise

As is typical in times of global crises, the price of gold tends to rise. However, only a couple of weeks ago, there was speculation that gold would plummet because of the possible easing of tension between Ukraine and Russia.

This has certainly not been the case, as we can now see, and so it looks like the value of gold is set to carry on increasing. Gold hit its highest point in over a year today and is up around ten per cent this year. On the 24th of February, when the attack on Ukraine occurred, gold rose again, hitting a more than a one year high. This is a reaction to the instability of markets across all countries and the perceived need to seek refuge in the perennial safe-haven metal. As we’ve outlined in this article, gold can be one of the most efficient investments in times of political unrest. So, if you’re looking to introduce a level of harmony to your investment portfolio, buying gold may be one of the safest options. We can provide you with both gold coins and gold bullion bars, with several options to choose from.

Get in touch with The Gold Bullion Company today to learn more about the benefits of buying gold.

Article Last Updated: Friday, March 4, 2022