Saturday , 23 September 2017


Gold: The Top 10 Holders & Producers by Country– and 23 Investment Options

So says Carolyn Pairitz (http://commodityhq.com) in edited excerpts from her original article* posted under the title Investing In Gold: The Definitive Guide.

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!), has edited the article below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.

Pairitz goes on to say, in part:

The price of the metal is widely followed by many investors, both sophisticated and simplistic. There are a number of different options for investing in gold, including buying up coins and bars of the product, exchange-traded futures contracts, stocks of companies engaged in the extraction and sale of the metal, and both physically-backed and futures-based exchange-traded products. [also read 50 Ways To Invest In Gold].

Physical Properties And Uses Of Gold

Gold metal is dense and soft, and is one of the most malleable and ductile of the pure metals. Those features, along with a resistance to corrosion, make gold useful in applications such as dentistry and electronics. Gold often appears naturally as part of a solid solution that is part gold and part silver-usually more than 90% gold. Gold can be found and mined in many forms, including flakes, grains, or larger nuggets.

Mining for gold is only economically viable if the metal is found in certain concentrations. Thanks to significant appreciation of gold prices in recent years, deposits with gold occurrences as low as 0.5 parts per million may be worthwhile; a concentration of about 60 times that level is needed before gold becomes visible to the naked eye, meaning that gold that appears invisible can often be valuable.

Unlike many metals, demand for gold in industrial applications is minimal. About 50% of new gold mined is mixed with other concentrations of precious metals like copper, silver, and palladium, and are used as jewelry. Since the financial crisis and most recent rush, investments now account for a significant portion of demand as well. Thanks in part to the introduction of gold exchange-traded funds (ETFs) in recent years, demand for gold from individual investors has increased significantly.

Top 10 Holders of Gold

Central banks of dozens of countries around the world hold gold bullion as a store of value and guarantee to debt-holders Gold is occasionally used in the settlement of international transactions. The largest holders of gold include:

Country Holdings (tonnes) % Forex Reserves
U.S. 8,133 77%
Germany 3,396 74%
IMF 2,814 n/a
Italy 2,452 74%
France 2,435 74%
China 1,054 2%
Switzerland 1,040 17%
Russia 874 10%
Japan 765 3%
Netherlands 613 63%

 

Other precious metals, such as silver and platinum, are used more widely in industrial applications such as automobile components. Because a significant portion of gold supply is used as an investment, the correlation between prices and the strength of the global economy may be considerably less than other metals (in certain environments, gold may be an effective equity market hedge).

Top 10 Countries in Gold Production and Reserves

Gold comes primarily from mining activity, with total global production in 2011 amounting to approx. to 2,700 tons.  Below is production by country (all data below is in tons) plus reserves by country:

Country 2010 Production 2011 Production Reserves
U.S. 231 237 3,000
Australia 261 270 7,400
Brazil 58 55 2,400
Canada 91 110 920
Chile 38 45 3,400
China 345 355 1,900
Ghana 82 100 1,400
Indonesia 120 100 3,000
Mexico 73 85 1,400
Papua New Guinea 68 70 1,200
Peru 164 150 2,000
Russia 192 200 5,000
South Africa 189 190 6,000
Uzbekistan 90 90 1,700
Other 559 630 10,000
Global Total 2,560 2,700 51,000

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Price Drivers

Unlike many investable assets, there are no cash flows associated with physical gold. And unlike many industrial and precious metals, there are few industrial applications for the metal either. As such, identifying the exact reasons for a move in gold prices can be tricky; the metal often reflects investor sentiment, and can respond to indications of inflation expectations, general economic health, and the strength of fiat currencies such as the U.S. dollar.

Below, several of the primary price drivers of gold are highlighted:

  • Inflation: Gold often acts as an inflation hedge, with interest in the metal increasing when price increases show signs of accelerating.
  • New Discoveries: As with any metal, the supply of gold can have a significant impact on prices. The pace of new gold discoveries has slowed considerably in recent years, though there are still a number of firms globally engaged in searching for new deposits of the precious metal. To the extent that any major discoveries are made, prices could decline. If discoveries of the metal slow even further, upward pressure on prices could materialize.
  • Reserve Demands: Governments and central banks are major buyers of gold, and the behavior of these institutions can have a major impact on the price of the yellow metal. China in particular could have a major impact on global gold prices, since precious metals account for only a minor portion of foreign exchange reserves.
  • Investment Demand: From one perspective, demand for gold as an investment vehicle is a self-fulfilling prophecy. Because gold can be stored at a relatively low cost and held indefinitely, stronger investors interest in gold leads to higher prices for the metal. Assets in gold ETFs have skyrocketed in recent years, and the increased availability of these products has likely contributed to the rally in gold prices. To the extent that investment demand accelerates, upward pressure on gold prices could remain.
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Investing In Gold

Gold has appeal as an investable asset for several reasons. It can serve as a safe haven, attracting assets when global equity markets show signs of instability. The yellow metal also has appeal as an inflation hedge or alternative to fiat currencies, positioning to potentially appreciate in a wide variety of environments.

There are a variety of options for accessing gold, including futures, ETFs, and physical exposure:

Physical Gold

Because gold maintains an extremely high value-to-weight ratio (a troy ounce is worth close to $1,750), it is possible and feasible for investors seeking exposure to simply buy gold coins or gold bullion. This strategy has the benefit of eliminating the nuances of a futures-based strategy, but may require secure storage arrangements. There is no shortage of dealers in gold coins, jewelry, and other forms of the metal.

As discussed in more detail below, there are also ETFs whose underlying assets consist of gold bullion. These funds offer exposure to spot prices while allowing for economies of scale that can minimize storage expenses.

Gold Futures

Gold futures are traded on the COMEX under the symbol “GC”.

  • Contracts are priced in dollars and cents per troy ounce (one troy ounce  is equivalent to about 31 grams, and is equal to about 1.1 avoirdupois ounces).
  • The contract size is 100 troy ounces.
  • Trading occurs on the CME Globex, CME ClearPort, and in Open Outcry trading in New York.
  • Gold futures are available during the current calendar month; the next two calendar months; any February, April, August, and October falling within a 23-month period; and any June and December falling within a 72-month period beginning with the current month.
  • Gold futures are subject to NYMEX position limits.

Gold Miners

Investors can also obtain exposure to gold by purchasing stocks of companies that are engaged in extracting and selling precious metals. Like most companies, the profitability of gold miners depends on the prevailing market price for the products they sell. As such, mining companies tend to realize higher profits when natural resource prices are elevated-especially if significant portions of the cost structure are fixed in nature. Mining stocks tend to trade as a leveraged play on the underlying resource, meaning that the movements in price are often more significant than changes in the related commodity over the short term.

Many gold mining companies also are engaged in the extraction of other precious and industrial metals such as silver, platinum, and copper. However, because gold is significantly more valuable than silver and copper and more common than platinum, it will often account for the majority of revenue and earnings of mining companies.

Major gold miners include:

  • Barrick Gold Corporation (ABX)
  • Goldcorp (GG)
  • Newmont Mining (NYSE: NEM)
  • Newcrest Mining (NCMGF.PK)
  • AngloGold Ashanti Limited (AU)

Gold ETFs

There are multiple ETFs offering exposure to gold as well, including both funds that invest in gold futures contracts and funds that invest in physical gold bullion. While the returns generated by these funds will generally be similar-especially in the short term-over longer periods certain strategies may perform better depending on the slope of the futures curve. Gold ETFs include:

  • Gold SPDR (GLD): This ETF invests in physical gold, meaning that it will reflect changes in spot prices of the commodity.
  • iShares COMEX Gold Trust (IAU): This ETF also invests in physical gold, and is cheaper than GLD in terms of expense ratio.
  • ETFS Physical Swiss Gold Shares (SGOL): This ETF invests in physical gold, storing bullion in Switzerland.
  • ETFS Physical Asian Gold Shares (AGOL): This ETF invests in physical gold, storing bullion in Singapore.

Futures-based gold ETFs include:

  • PowerShares DB Gold (DGL)
  • E-TRACS UBS Bloomberg CMCI Gold ETN (UBG): This product is an exchange-traded note, meaning that investors are exposed to the credit risk of the issuer.

Other gold exchange-traded products include:

  • RBS Gold Trendpilot ETN (TBAR): This product oscillates between exposure to gold and cash depending on momentum factors and recent performance.
  • FactorShares 2x Gold Bull/S&P 500 Bear ETN (FSG): This ETN offers leveraged exposure to the spread between gold and the S&P 500 on a daily basis.

Leveraged gold ETFs include:

  • PowerShares DB Gold Double Long ETN (DGP)
  • PowerShares DB Gold Double Short ETN (DZZ)
  • PowerShares DB Gold Short ETN (DGZ)
  • ProShares Ultra Gold (UGL)
  • ProShares UltraShort Gold (GLL)
  • VelocityShares 3x Long Gold ETN (UGLD)
  • VelocityShares 3x Inverse Gold ETN (DGLD)

There are also a number of ETFs that provide exposure to gold indirectly through investments in stocks of companies engaged in the discovery, extraction, and sale of the metal. These ETFs include:

  • Gold Miners ETF (GDX)
  • Pure Gold Miners ETF (GGGG)
  • Junior Gold Miners ETF (GDXJ)
  • Global Gold and Precious Metals Miners Fund (PSAU)
  • Gold Explorers ETF (GLDX)
  • MSCI Global Gold Miners Fund (RING)
  • Daily Gold Miners Bear 3x Shares (DUST)
  • Daily Gold Miners Bull 3x Shares (NUGT)

Resources On Gold Investing:

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*Source of original post: http://commodityhq.com/2012/investing-in-gold-the-definitive-guide/

Editor’s Note: The above post may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.

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