Sergio Martin Rubio  4 mins read.


Tracing Gold's Spot Price Over Time

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The spot price for gold is set by institutions like the London Bullion Market Association (LBMA) or the CME’s COMEX exchange, as we already discussed in our comparison between the spot price and offer price. 💼📊

Gold’s price changes over time, so it’s crucial to know its past. This helps when comparing it to other assets like stocks, oil, or real estate. This comparison serves as a reference point for understanding current and future trends. 📈🏠

Historical Overview of Gold’s Spot Price

Gold has been around for over 5000 years now, and its trend has always been upward in the long term. Countries are still accumulating gold as a store of value or backing up currency in case of an economic disaster. In recent years, we’ve seen how countries like China have significantly increased its gold reserves. This tendency seems to be common within the BRICS (Brazil, Russia, India, China, South Africa). People hold gold because it’s valuable, lasts a long time, and everyone agrees it’s worth something. Throughout history, civilizations have used it as money. 💰

Historically, gold has served as a tool for hedging against inflation, yet its investment value may not be as favorable compared to riskier assets like stocks, which often yield higher returns. Nevertheless, gold’s inclusion in an investment portfolio is justified by its low correlation with other financial assets such as stocks or bonds. This characteristic makes it an effective diversification tool and aligns with Modern Portfolio Theory (MPT) theory, where it helps maximize overall returns while mitigating the risk associated with other assets. 📈🔒

Total Real Return Indices for different assets adjusted for inflation
Source: Jeremy J. Siegel, Ph.D. (https://www.bourbonfm.com)

Comparison with Other Assets

Spot prices fluctuate due to factors such as supply, demand, political events, or future trades. Conversely, other assets like cryptocurrencies or stocks are influenced by different kinds of factors.

The gold spot price is typically compared with cryptocurrencies, as many claim them to be the new era gold, capable of serving as a store of value in a similar manner. However, the high volatility of cryptocurrencies like Bitcoin or Ether makes them high-risk investments.

Over the last two years, the price of gold has increased by approximately 25.94%. It’s worth mentioning that in the last three months alone, gold prices have surged by around 13.83%. In comparison, the cumulative inflation rate in the US between December 2021 and December 2023 stands at around 9.2% (6.5% + 2.7% estimated). Therefore, if we compare this with the increase in the gold price, we observe a positive difference of 16.74%, or 2.91% if we exclude the substantial spike in the last quarter. This provides a good indication of how closely the gold price aligns with inflation.

Gold Spot Price Over Time

Now, if we compare the performance between gold and Bitcoin (BTC), we can clearly identify a winner. The price of Bitcoin has surged by 132.44% in the last year, whereas gold has only seen an increase of 14.66%. However, it’s important to note the higher volatility associated with Bitcoin, which means that one may have bought or sold BTC at the wrong time. Similar results are observed with Ethereum (ETH), albeit with a lower return on investment (ROI) and even higher volatility.

Crypto vs. Gold Performance Over Time and Correlation

Lastly, if we examine the 3-month rolling correlation between gold and BTC over the last year, we observe a positive correlation of about 80%. This aligns with what many experts suggest about cryptocurrencies becoming the new gold, although crypto is also influenced by other factors such as technical elements like recent halving events, causing the positive correlation to decrease.

Gold has long been a trusted way to store wealth, maintaining its economic strength for centuries. This trend shows no signs of fading, especially with countries like China hoarding gold. ⏳ Timing the market is risky, so many investors stick to strategies like dollar-cost averaging to avoid losses from the unpredictable gold market. 📉💰

Tools

You can start using the precious metals app to closely follow the gold, silver, or platinum trends, as well as how well they are doing in comparison with Bitcoin or Ethereum. Additionally, you can take a deeper look to see their correlation. 📈🔍

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