In this week's article, we'll be looking at 'fundamentals' and why investors use these to predict future prices in markets. First, it's important to understand what a fundamental is, the main differences between 'internal' and 'external' fundamentals and how to use this information to better aid your investment decision-making process.
What is a 'Fundamental'?
A 'fundamental' is essentially an attribute of an asset that could have an effect on the price of that asset over time. These can be broken down into different areas for investors to look out for. The main focus areas for precious metal fundamentals are as follows...
When looking at gold and silver, the longer-term fundamentals are the physical properties that these metals hold. These can be things like: malleability, conductivity, portability, anti-bacterial, reflectivity etc.
The properties themselves don’t change over time, but the usefulness of their properties do. This allows us to see which industries could benefit from new inventions that require those properties in the future. For example, due to recent regulations on air quality, Platinum is now being used as a catalyst, converting noxious gases into safe substances in car exhausts. Silver is also an industrial metal, the medical uses of which include wound dressings, creams, and as an antibiotic coating on medical devices.
'External fundamentals' are the geopolitical relations of the asset, the push and pull factors that affect the price of Gold and Silver prices throughout time. These again, are usually proven and hold a fairly dependable relationship with the general price moves of the physical metals. External fundamentals could be things like: Central Bank quantitative easing, interest rates, inflation and deflation, international conflict, crashes in their opposite market swing (such as property), good old human fear and group mentality. These factors, although not inherent to the value of Gold and Silver, have enough historical relationship to the previous price rises and falls to give us good guides to the price response of Gold and Silver.
The Test of Time Vs. ETFs
ETFs (or Electronically Traded Funds) are traded on the stock exchanges (much like stocks) and typically have higher daily liquidity. An ETF is generally linked to a commodity but doesn't involve actually owning the physical product, but a 'paper contract'. Read more about the differences between owning physical metals vs paper contracts (or shares) here.
Gold and Silver hold the ultimate 'social proof' as it were. Psychologically, we as humans trust what has been around for longer, precisely because it’s stood both the test of time, competition from ephemeral trends and critiques from modern impersonators. I would put the ETF into this bracket. While the uses of physical Gold and Silver investment can be traced back thousands of years, across seas and mountains, the ETF was born in the Western world in 1989.
Quite surprising, considering the ‘established’ tone the praise of the ETF takes today:
“According to Gary Gastineau, author of "The Exchange-Traded Funds Manual," the first real attempt at something like an ETF was the launch of Index Participation Shares for the S&P 500 in 1989 [but] a federal court in Chicago ruled that the fund worked like futures contracts, if they were to be traded, they had to be traded on a futures exchange, and the advent of ETFs had to wait a bit.
The next attempt at the creation of the modern Exchange Traded Fund was launched by the Toronto Stock Exchange in 1990. These were a warehouse, receipt-based instrument.” Not sounding classic and shiny like Gold and Silver at all really.
Three years later, the State Street Global Investors released the S&P 500 Trust ETF (called the SPDR or "spider" for short) on January 22 of 1993. Although the first American ETF launched in 1993, it took 15 more years to see the first actively-managed ETF to reach the market.” (Investopedia)
Note the Difference
I read a short piece this morning, that was so insightful to me because it summed up the opposite view. This article was from a modern perspective on how to view investing in stocks, Amazon stocks to be precise; itself a young company. It held standard advice for short-term investment. But it is the opposite modus operandum for owning such classics as Gold and Silver:
“It’s given that Amazon has strong fundamentals. There is nothing to be gained by focusing on them other than generating fancy reports.” Note the tone. Fundamentals are bad. “Don’t make this mistake. In growth companies such as Amazon, it is common for the stock price to run ahead of the fundamentals in terms of valuation. When the stock becomes popular and everyone who wants to own it already owns it, the driving factors become sentiment and momentum. This is the reason that at this time investors’ focus should be on momentum. Sentiment drives momentum.”
The above viewpoint is right for short-term sales and investments, for quick productivity cycles of up and down, reliable and not reliable in profit and dependability. They basically recommend ignoring the fundamentals (or the long-term facts) and ‘follow the feels’. Even Gold and Silver have short bursts in their price moves that are driven by sentiment. But this is a quick short-term reaction. Many of Bleyer’s clients are in the investment for the long haul and have the wisdom and clarity to see past the razzle and dazzle of short-lived trends.
The writer continues: “There are many intelligent analysts, and their reports are usually helpful. However, carefully review the history of analysts’ reports on Amazon. You will reach a conclusion that, lately, some analysts look at Amazon’s stock-price momentum and then come up with justifications shrouded in fundamentals and fancy numbers. After all, what choice do analysts have?”, (Market Watch). Again, note the tone.
Facts Always Speak for Themselves
By contrast, Gold and Silver don’t need to talk down. There is a silent long-term witness about them. They simply are the real money. Time has proved that. Time will prove that. If they had a voice through the empires, continents, decades and languages to which they have witnessed they would probably still remain silent and just let their historical presence do the talking. Any chart of the Gold and Silver price clearly shows Gold holds its class and value across the changing fads of any one generation. Read more about how the gold price has changed over the past 45 years here. Ultimately, this makes it a great investment for every generation – true, classy diversity.
In a sense - physical Gold and Silver are the true epitome of diversity - across age, culture and political view. Travel almost anywhere in the world, read any precious metals article from each continent, and we find happy investors in Gold and Silver. Bleyer have investors from every age bracket, a rich variety of cultures and across opposing sides of the political aisle. It is quite a remarkable achievement to find an investment which brings so many people together in having the ability to drop their own worldview and agree on the value of this investment product. Maybe some of the inherent wisdom and timelessness of the old physical metals rub off on us; as it has watched repeated, and unoriginal economic storms pass it by through time.
Gold and Silver are always investments to hold over long periods of time, even from one generation to the next. They are solid precious metals of intrinsic value. To take part in the enjoyment and security of owning the 'Real Money' of Gold and Silver call Bleyer now on 01769 618618 or email [email protected].