Is Gold a good investment? Putin thinks so.


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UK buys $5 billion worth of Gold.

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Gold is on the rise and people are buying it.

Britain just got the biggest Investor Crate ever! Just kidding, we didn’t sell it to them, but Russia did. In fact, Russia isn’t only buying Gold, they are also selling it, along with oil, oil products, Silver and Platinum. Why do Central Banks buy Gold? It’s the same reason you buy Gold.
Recently, Gold and Silver physical ownership are at an all-time high as civilians and governments alike are buying as much as is available. Let’s go over the who’s and whys of it all.

In recent years, Putin has been one of the world's biggest stackers, putting even the wealthiest Gold and Silver bugs to shame. Russia’s Gold reserves are at the highest point they’ve been with an estimated $114 billion’ worth of the yellow metal (up by about 45% in the last decade). That would be a whopping 71 MILLION troy ounces. That is far north of China (who is quite the stacker as well) coming in at about 90 billion dollars’ worth of Gold.

Further down is the list of people and Governments buying the most.

The United Kingdom whose Gold Reserves ranked number 19 globally (by weight) before the purchase has now beaten Turkey out of the number 14 spot. This comes with the sagging value of the Pound due to Brexit and as the money supply increases Gold is used to hedge for this inflation. Precious Metals are a hybrid in that they are a commodity but still a form of currency. It’s the oldest form of currency and is not going away anytime soon.

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I’m confused, how does Gold prevent inflation?

In the U.S. the Federal Reserve manages the money supply, so when the Fed buys back issued securities like Bonds and Treasury Bills from the large banks, the available money supply increases. Sometimes this isn’t even in the form of actual, physical dollar bills, but just numbers in a computer. This might be a touchy subject but think about your bank account. You likely use a bank app and debit card which just exchanges digits to-and-fro. If everyone went to the bank and attempted to pull out their cash, well, there simply wouldn’t be enough available. This isn’t a conspiracy either, this information can be found right on the Federal Reserves website. The current money supply is just shy of $4 trillion and there are only $1.7 trillion in physical currency in circulation.

Gold and other physical Precious Metal bullion do not prevent inflation, it hedges against it. Gold will always be worth its weight in Gold, but Government issued legal tinder and its buying power fluctuates in worth. As the money supply increases, the buying power decreases and vice versa. This is why a pack of gum costs well over a buck plus tax, whereas in the 90s you could get a pack of gum for half that. This is also why a pack of gum costed .10 cents in the ’60s. Funny enough, that same dime (which before 1965) was made from 90% Silver, is worth approximately, you guessed it, a pack of gum today. It’s not that Wrigley is price gouging, or the gum is more technologically advanced, it’s simply that the dollar you are using to buy it with doesn’t stretch as far. 

Central Banks hedge against their gross misconduct?

It’s easy to point fingers at the Banking elite and come up with some vicious and ruthless conspiracies but all in all, it is not that bad. There isn’t some guy, who just throws a dart at a huge board of numbers and adjusts the money supply accordingly. These decisions are very calculated, and Gold is simply used as a tool to prevent too big of a wealth gap between its currency and Gold holdings. Now, this isn’t to say this system can’t be used nefariously or negligently, (1933 cough, cough… Great Depression, cough, cough…).

Why would the strength of the dollar signal to foreign Central banks to buy Gold?

The US dollar is the ‘gold standard’ of Global currencies and is used in trade. The ‘petrodollar’ is any single U.S. dollar that is used to purchase oil or in exchange for oil. In other words, if you don’t have USD, you aren’t buying oil any time soon. This has been the case since the 1970s and the world agrees to it. The last time a country disagreed with this and decided it would take Gold as an exchange currency for oil and not USD, well that country was named Iraq and you probably know the outcome of that. (Now you can make a conspiracy theory) With this established, companies tend to buy and trade US currency similarly to stocks. However, with the recent increase in the money supply and with the recent interest rate cuts, central banks are dumping the dollar for Gold. In the last 9 months, the global demand for Gold is up by nearly 4%. 

So who has the most gold? (By metric tonne)

  • United States – 8133 tons most of which were confiscated from the public.
  • Germany – 3,366
  • Italy - 2,451
  • France – 2,436
  • Russia – 2,271
  • China – 1,948
  • Switzerland – 1,040
  • Japan – 765
  • India – 633
  • Netherlands – 612
Dozens of Gold Bars

Gold imported from Switzerland undergoing quality inspection procedures at an Investor Crate facility circa 2017.

What about Private entities? (Per metric ton)

  • SPDR Gold Shares (ETF) – 672
  • ETF Securities Gold Funds (ETF) – 215
  • COMEX Gold Trust (ETF) – 164
  • ZKB Physical Gold (ETF) – 138
  • Central Fund of Canada (CEF) – 52
  • Julius Baer Physical Gold Fund (ETF) – 49
  • Sprott Physical Gold Trust (CEF) - 38
  • BullionVault (Bailment) – 34
  • GoldMoney (Bailment) 34
  • ABSA NewGold Exchange Traded Fund – 26

What about Private citizens using Gold as an investment?

It is nearly impossible to track the secondary market of Private (non-corporate) sales of Gold which accounts for much of the trade but direct sales data from the U.S. Mint (domestically) is available. This data points to at least 5-10 million U.S. citizens stockpiling Gold with an estimated yearly average of $610,000,000 worth of private Gold purchases from the U.S. Mint alone, with an additional $200,000,000 in Silver Bullion sales.

This does NOT account for imports of coins, bars, and rounds from entities such as the Swiss Bank, PAMP SA, Royal Mint, South African with their precious Krugerrands and the various others who mint bullion and deal in the commodity. But in 2018 alone, Customs import records show that a whopping $9.6 billion’ worth of Gold was imported into the U.S. Some of this Gold is used in industries such as Dental, Electronics, and Jewelry but because the U.S. is at its all-time low for manufacturing, it's estimated that only 15.6% of the Gold imported was used outside of direct investment.

We do know the top 10 online bullion retailers account for $2.5 billion in annual Gold, Silver, Platinum, Palladium, and Copper sales for investment purposes alone. This does not account for secondary and tertiary markets such as private sales, coin shop and pawn shops.

This number is quite impressive seeing how headlines such as ‘Russia purchase $40 billion in Gold in the last 15 years.’ Well, it turns out, so did the citizens of the U.S… 

What about Silver as an investment?

 Silver seems to be extremely popular and as the gap widens with the Gold to Silver ratio, more and more investors are eyeing it as a potential. JP Morgan & Chase, who historically hits home runs on its investments, has recently purchased over 95 million ounces and in the last 12 years alone the demand for Silver has climbed by a whopping 400%. This demand does NOT include new industrial consumers (i.e. solar, electric vehicles, smartphones), this is simply the demand for Silver coins, bars, and rounds. This is despite (or maybe because of) the fact that Silver is about 30 dollars lower than its all-time high which was $47 per troy ounce in 2011.

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This information is and should be looked at as entertainment. This data, blog and any information on this website are not meant to be, in any way, investment advice. You should always seek financial advice from a certified financial adviser before making any investment or large purchase. Always be informed of risks and liabilities before making a decision!

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