Last week, the gold price chart on the international market broke through an important price level, so a long-term upward trend is forecast and investment opportunities in gold are emerging.

This article contains 3 chapters with the following topics:

Gold on financial exchanges

• Gold - appreciation potential
• Gold versus USD - analysis of a 50-year period
• 7 reasons to invest in gold

Gold in Moldova

• The price of gold in Moldova
• Investments in physical gold in Moldova
• Investments in gold through ETFs and CFDs

Global data about gold 

• Which country holds how much gold
• Which country extracts how much gold
• How much gold has been extracted and how much remains in deposits worldwide

Gold on financial exchanges

Gold - appreciation potential

For the gold quote on the international arena, June was an important month. Gold came out of hibernation. In other words, the GOLD chart broke upward through the horizontal channel (accumulation state), which lasted 3 years. From the point of view of chart analysis, this event signals an increased probability that the price will continue to develop an upward trend or at least an impulse. 

Since this event happens on large periods (yearly intervals), we are now talking about the opportunity to plan a long-term or medium-term investment. The positioning in this investment would be better from a lower price. Therefore it would be good if, after this breakout, gold retests the 1360$-1330$ area per ounce. Find out below what other reasons support this investment and what the targets are.

Gold versus USD - analysis of a 50-year period

In 1973 the USA abandoned the gold standard, meaning that from that moment the US dollar was no longer backed by gold, and the price of gold evolved not as a currency but based on demand, its use as a precious metal, and its role as a safe-haven asset. Therefore, below we present the chart analysis for gold and USD starting from 1970.

Internationally, gold is quoted in US dollars. In turn, the strength of the US dollar is represented by the stock-market index USD Index , which was also launched in 1973 and is measured in points (the starting level was 100 points; now USDX measures 96.357 points, so USD has weakened). 

Before doing the analysis, look at the following 2 images and you will see what the price of gold was and what the strength of the US dollar was at different moments over 50 years:

Gold is quoted in USD, so when USD falls, more dollars must be paid for one ounce of gold, and the gold price rises. And vice versa. Now compare these two charts, and you will notice this inverse correlation between them!

For example, during 2000-2010 the dollar index fell while gold rose (from 280$ to 1900$ per ounce, almost 600% !!!); and from 2010 until today, the opposite happened - the dollar rose and gold fell (from 1900$ to 1050$ per ounce, or -45%).

If we make a complex analysis of all waves over these 50 years and the global trends on these 2 charts, we observe that USD overall is in a downward trend, while gold overall is in an upward trend. Then (having knowledge about trend structure), we can understand that inside these trends, further waves are expected (the direction of price movement in the channel) of US dollar depreciation and gold quote appreciation.  

On the gold chart, we see that the 2011-2015 decline represents the second correction wave, with a depth of approximately 50% relative to the previous impulse, down to 1050$ per ounce. This price was close to the extraction cost of gold in 2015 for many companies around the world, and if the gold price had fallen below cost, producers would have stopped, gold would have entered a deficit, and the gold price would automatically have had to rise back. Plus, demand for gold always grows, while global quantities are limited (see the quantities of gold in the last paragraph of this article).

From these points of view (chart and fundamental), we see a unique scenario: gold will continue to rise, and now the third impulse wave within the global framework of the upward trend must develop. This impulse could last 8-12 years, with a target toward 2700$ for one ounce of gold. But before that we will meet the historical high threshold of 1900$, which gold may reach within 2-5 years. So if gold first falls to 1360$ (as described at the beginning of this article) to give us a better-positioned entry, then growth to 1900$ would mean a 40% profit, and to 2700$ a 100% profit.

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7 reasons to invest in gold

A history of maintaining value

Unlike paper currencies, gold has maintained its value over the centuries. People see gold as a way to pass on and preserve wealth from one generation to another.

Weakness of the US dollar

Although the US dollar is one of the world's most important reserve currencies, when the dollar's value falls against other currencies, as it did between 1998 and 2008, this causes people to cling to the security of gold, which raises gold prices.

Inflation hedge

Historically, gold has been an excellent means of protection against inflation, because its price tends to rise with the increase in the cost of living. Over the past 50 years, investors have experienced rising gold prices and a falling stock market in years of high inflation.

Geopolitical uncertainty

Gold preserves its value not only in moments of financial uncertainty, but also in moments of geopolitical uncertainty. It is often called the "crisis commodity" because people seek relative safety when global tensions rise; in such moments it often outperforms other investments.

Limited supply

Since the 1990s, most of the gold supply on the market has come from sales of gold bars from the vaults of global central banks. These sales by global central banks slowed significantly in 2008. At the same time, production of new gold in mines has fallen since 2000. According to BullionVault.com, annual gold production fell from 2,573 tons in 2000 to 2,444 tons. In 2007 (however, according to Goldsheetlinks.com, gold production increased in 2011, and in 2011 production reached almost 2,700 tons.) It may take five to ten years to launch a new mine. As a rule, reducing the supply of gold increases the gold price.

Demand growth

In previous years, rising prosperity in emerging-market economies increased demand for gold. In many of these countries, gold is interconnected with culture. India is one of the world's largest gold-consuming countries. The Indian wedding season in October is traditionally the time of year when the highest global demand for gold is observed. Demand for gold has also increased among investors as an investment class to which funds should be allocated.

Portfolio diversification

The key to diversification is to look for investments that are not closely connected to each other; historically, gold has had a negative correlation with stocks and other financial instruments. A recent story confirms this:

• The 1970s were wonderful for gold, but terrible for stocks.
• The 1980s and 1990s proved excellent for stocks, but terrible for gold.
• In 2008, stocks fell substantially as consumers moved into gold.

Well-diversified investors combine gold with stocks and bonds in a portfolio to reduce overall volatility and risk.

Conclusion

Gold should represent an important part of a diversified investment portfolio. Although the gold price can be volatile in the short term, it has always maintained its value over the long term. For many years, it has served as a defense against inflation and the erosion of major currencies.

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Gold in Moldova

The price of gold in Moldova

The price of gold in Moldova is determined every working day by the National Bank of Moldova and is valid starting from the next working day. In fact, the price of gold in Moldova depends on its quote on the international arena, adjusted for the strength of the Moldovan leu. The formula is simple:

On the international market, gold is quoted in US dollars for one troy ounce (unit of measurement for precious-metal quotes). One troy ounce is equal to 31.1034768 grams. Thus, if on the exchange one ounce of gold costs 1390 USD, it follows that one gram of gold costs 1390/31.1=44.69 USD. And if in Moldova at the moment 1 USD costs 18.10 MDL, it follows that one gram of gold should cost in Moldova 44.69*18.10=808.88 lei. Checking now (02.07.2019) the National Bank page (https://www.bnm.md/ro/content/pretul-la-metalele-pretioase), we will observe that the price of one gram of gold is 821.62 lei, which approximately matches our calculations.

Having the ability (or a consultation) to analyze the Gold and MDL/USD charts and forecast their evolution, you will be able to understand what the price of one gram of gold in Moldova could be in a few years. For example, according to analysis and forecasts, if USD/MDL reaches 20 lei per USD in 1-1.5 years, and during the same interval one ounce of gold rises to 1500$ per ounce, then at that moment one gram of gold in Moldova should cost approximately 964 lei, or 17.4% more than now. Such a scenario represents a possibility to make profit through investments.

Investments in physical gold in Moldova

We contacted the National Bank of Moldova and several of the most popular commercial banks, but unfortunately they all answered that they do not sell and do not buy fine gold. These banks have only jubilee and commemorative coins in silver and more rarely in gold. In any case, the value of such coins is lower in other countries, where the people commemorated on the coins are not known.

Because banks in Moldova do not work with gold bars, we will explain how this procedure takes place in Romania.

Investments in physical gold in Romania

If keeping gold at home is a bad idea for safety reasons, then keeping it in bank safe-deposit boxes requires paying fees that will reduce the return on the investment. Also, if you buy gold bars or coins and decide to keep them somewhere other than at the headquarters of the bank that issued them, that bank no longer has the obligation to buy them back. And selling a bar "on the street" at a fair price and at the moment of need, you realize, is not easy.

The portal investestelabursa.ro wrote that buying and liquidating physical gold through banks with buyback services is a loss-making investment. If we take a concrete example, we can check the price of gold bars issued by various banks on their own websites. Thus, the cost per gram on a gold bar sold by a well-known bank in Romania on July 25, 2017 was 182 Romanian lei (while the gold rate on the BNR website was 158 lei/g). The bank also offers buyback services for gold bars kept only in the bank's custody at a price of 148 lei/gram. So from the start we have a percentage difference between selling and buying of 23%.

Investments in gold through ETFs

Another way to invest in gold is through ETF-type instruments via a broker. ETF-type instruments are very similar to index certificates listed on the stock exchange, in the sense that these instruments also track the price of gold on international markets. Thus, the conditions will be much more advantageous compared with investments in physical gold, and here they are:

1. there are no storage fees as with physical gold, but a single commission per transaction of ONLY 9.98 EUR regardless of the invested amount or 0.24% of the invested amount!
2. you buy and sell the purchased gold at any moment, online, at market conditions
3. the level of investment protection remains very high, with a maximum cap of 85000 GBP per account.

 

Here are the names of ETFs denominated in EUR and USD that offer exposure to gold:

• iShares Physical Gold ETC (ETC EUR)
• iShares Physical Gold ETC (ETC USD)

Gold trading through CFDs and index certificates

Few people know that investments in gold can also be made through the exchange, by buying financial instruments whose underlying asset is gold, such as index certificates or CFDs. These financial instruments are structured products issued by banks that are traded on the stock exchange like any other share and have the particularity of exactly imitating the variation of the gold quote on international markets. CFD-type instruments even offer the advantage of financial leverage, meaning any variation in the gold quote is amplified 10, 50 or even 500 times, thus offering the possibility of larger gains. Of course, using high leverage means losses can be just as large.

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Global data about gold

Which country holds how much gold

According to statistica.com, in March 2019, the United States had the largest gold reserve - over 8,000 metric tons of gold. This was more than twice the gold reserves of Germany and more than three times the gold reserves of Italy and France. China ranked sixth for the amount of gold it has in reserve. 

USA

Washington holds the world's largest gold reserves of 8,407 tons. This represents more than 75% of national foreign-exchange reserves.

Germany 

Currently, Deutsche Bundesbank holds 3,483 tons of gold, which represents more than 70% of German foreign-exchange reserves. The regulator tried to repatriate approximately 674 tons of gold kept by Banque de France and the US Federal Reserve Bank. The repatriation of the nation's gold is expected to be completed by 2020. 

Italy 

With 2,534 tons of gold, Italy is in third place. This quantity represents almost 70% of the country's foreign-exchange reserves. In accordance with the policy followed by the Bank of Italy, gold is the safest investment in periods of economic turbulence and a protection against the volatility of the US dollar. 

France 

Paris holds 2,518 tons of this precious metal, which represents approximately 60% of France's foreign-exchange reserves.

Russia

Over the past six years, the Russian central bank has greatly increased its gold purchases. In 2017 the country pushed China out of the list of the top five major gold holders. Last year, Russia became the most important gold buyer in the world, with net purchases reaching 274 tons. In February, the Russian central bank boosted foreign-exchange reserves with 31.1 tons of gold, raising precious-metal holdings to 2,149 tons.

Moldova

The Republic of Moldova is a state that keeps its reserve almost entirely in currency. The latest report of the National Bank of Moldova (BNM), February 22, 2019, shows that in total official reserve assets amount to approximately 2 billion 808 million USD, while the value of the gold reserve is slightly over three million dollars, reports IPN. 

Former finance minister Veaceslav Negruta noted that the small gold reserve held by BNM is explained by the fact that the country has no gold deposits and has never been an important player on the regional or global gold market. The gold in the reserve of the National Bank of Moldova was inherited from the National Treasury after it was liquidated. 

Storing large quantities of gold involves high expenses. Gold requires special conditions for maintenance, deposit, storage, including security and guard measures. States that do not have sufficient capacity to store the gold reserve choose to keep part of the gold in another country, for a fee. Switzerland is a state with large gold-storage capacity, so Swiss banks keep part of the gold reserves of other states.

(Europa Liberă: You said that for now the National Bank does not rely on gold reserves, but does the Republic of Moldova have a gold market?

Iurie Gotisan: “I do not think we can say that there is a real gold market in Moldova. Because it is quite small and in fact we do not have a culture of trading this metal. What is sold and bought here can rather be classified as over-the-counter gold sales. Still, specialized stores have recently indicated that demand for gold bars, I mean the small ones, is quite high, much higher than supply, meaning more people buy than sell this product...". 

Which country extracts how much gold

As seen in the chart below, China ranks first among global gold producers by a wide margin, extracting 87 tons more than Australia in second place. The top of the ranking remained unchanged between 2017 and 2018, except for Indonesia and Peru, which switched between sixth and seventh place. Among the top producers, Indonesia recorded the largest annual gain, increasing production by 23%.

1.      China - 399.7 t

For many years, China has been the top producing nation, representing 12% of global mine production. However, this is 6% lower than 2017 and marks the fourth consecutive year of decline. The downward decline is largely due to stricter environmental policies imposed by the government

2.      Australia - 312.2 t

Australia, on the other hand, posted six consecutive years of production growth, up 6% in 2018. GFMS reports that Newcrest's Cadia Hill mine set a production record of 23 tons, representing a 38% increase compared with 2017. AngloGold Ashanti recorded 12% growth, while Kirkland Lake grew by 21%. The minerals industry produces more than half of Australia's total exports and generates approximately 8% of GDP. 

3.      Russia - 281.5 t

A total of 83% of European gold comes from Russia, which has increased production every year since 2010. Russian production rose by 11 tons in 2018, or about 2%, while policymakers focus on growing the industry. Who is the largest buyer of Russian gold? The Russian government, of course, which buys around two thirds of all locally produced gold.

4.      United States - 253.2 t

American gold production increased by 10% in 2018, marking the fifth consecutive year of growth. Production was supported by higher grades at Newmont operations in Nevada. In fact, approximately 78% of the gold produced in the U.S. comes from Nevada.

5.      Canada - 193.0 t

   Canada gained two places on the list last year and kept fifth place in 2018, producing 17 tons more than the previous year.

How much gold has been extracted and how much remains in deposits worldwide

Based on the fact that not much gold remains in deposits, we must understand that the price will not fall over decades...

To date, approximately 190 thousand tons of gold have been exploited. Research carried out shows that underground there are still approximately 54 thousand tons of gold reserves waiting to be exploited.

Of the total gold stock, over 90 thousand tons are used for making jewelry. Next come private investments, where approximately 40 thousand tons are used, while world governments have a total reserve greater than 32 thousand tons of gold. There are also numerous industries that use more or less of this precious metal, amounting to almost 27 thousand tons, and most of it goes into the IT industry. Electronics factories sometimes use as much as 12% of the tons extracted annually.

It happens that a large part of the gold used for gadgets ends up in the landfill, about 7% of all gold ever extracted.

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