At the end of 2015, most gold market watchers had one concern: the US Federal Reserve. Expectations that the central bank would raise interest rates were running high, and the general consensus was that an increase would not bode well for the yellow metal.
A month and a half into 2016, it’s clear that the situation didn’t play out the way many feared it would. While the Fed did raise interest rates midway through December, gold hasn’t suffered as a result. In fact, on February 11 it blasted through the psychologically important $1,200-per-ounce level to hit $1,260 — that left it up just over 16 percent since the rate hike.
While gold has since retreated to trade closer to $1,200, many investors remain concerned about various aspects of the global economy, and are beginning to think of gold as a safe haven once again. In other words, investors have switched from being worried about gold’s performance in relation to the Fed to being worried about the world economy.
Another 2008 not in the cards
That’s a situation that Josh Crumb, founder and chief investment officer of innovative fintech company BitGold, finds interesting. In his opinion, what market participants are really wondering is “whether we’re going to have another recession and credit crisis. Is it 2008 all over again because of oil prices and bankruptcies?”
The prospect is certainly a worrying one, even for gold investors — after all, as Crumb pointed out, though 2008 brought plenty of economic turmoil, which tends to boost the gold price, the yellow metal still sold off during 2008. Luckily, for Crumb it’s easy to see that today’s world is much different from the 2008 world.
His confidence hinges on the idea that gold’s core drivers are actually real interest rates and energy prices. Essentially, said Crumb, heading into 2008 high energy prices and low real interest rates drove gold higher before its crash; now, however, energy prices are low and real interest rates have been on the rise. That means “fundamentally there is really only one direction for gold to go from here, even if we have a crisis.”
Look at gold long term
It’s tempting to wonder why Crumb is looking at real interest rates and energy prices, which don’t typically enter conversations about the gold price. Answering that question, Crumb said that while it’s popular to chalk gold’s price activity up to nebulous concepts like fear, it’s worth investors’ while to dig a little deeper.
“The way I differ in my view of gold from most people is that I look at the long term, why gold holds value as money over time,” said Crumb. “Markets have become so short term, and [people] are thinking about the best thing to produce year-over-year returns — or one quarter or one month. That’s not the best way to look at it, as a speculative or emotional investment, because by definition you’d always end up chasing the moves after they happen.”
Instead, Crumb is focused on “the fundamentals of the gold price, and why as a $7-trillion market it doesn’t move so much on the whim of short-term effects.” He added, “I really believe that there have to be macroeconomic fundamentals to supply and demand.”
BitGold appeals to investors
Thus far, that long-term view has served Crumb and BitGold well. Indeed, as the company’s most recent key performance indicators report shows, it’s thriving despite difficulties in the gold market in recent years.
Crumb also credits BitGold’s success to the fact that it’s been able to “remove friction” for people interested in investing in or saving gold. As he pointed out, it can be challenging for those interested in the market to get a foothold — “not everyone can afford high-priced coins or bars, and not everyone has an active brokerage account.”
BitGold has solved that problem by allowing ordinary people to buy and sell gold in any dollar amount through online banking, and also use it for instant everyday purchases. Outlining how that works, Crumb emphasized the simplicity of the process — customers buy gold through BitGold.com, and it’s then stored for free at Brinks; from there, customers use BitGold’s platform to access the gold in electronic form or spend from a prepaid MasterCard.
“Just like your bank account, just like a PayPal (NASDAQ:PYPL) account, now you can use the gold and send the value of that gold anywhere in the world for free. It’s the best of both worlds: gold is global and maintains value better than currencies without interest rates, and we’ve made it easy to use as money,” said Crumb.
The company has a diverse base of users, and Crumb is particularly encouraged by the fact that BitGold is reaching people who hadn’t previously considered investing in gold. “We have an opportunity to help people bridge through [the current global economic situation] by storing value and moving with the underlying positive trend,” Crumb concluded.
For more on Crumb’s ideas, check out this article that he recently published with Stefan Wieler.
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: BitGold is a client of the Investing News Network. This article is not paid-for content.
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