At the Academy of Financial Trading Blog we’ve talked before about the value of real assets, however there’s never been a better time to illustrate the point than now. So why is the situation in the Ukraine pushing up gold values, and what does this mean for online trading?
Real assets, as we’ve previously explained, are literally real. Unlike financial assets, which are things like shares and stocks, when you invest in real assets you are investing in tangible things; in the product/resource itself.
Naturally this means that the value of real assets in the online trading game is very different to the one held by financial assets. You trade in financial assets when you’re playing the short term game; you invest in real assets in the long term. This is because real assets tend to be valuable in times of market turmoil.
This makes sense, as when the market is turmoil (made so by bubble’s bursting, current affairs casting doubt on supply etc.); shares that physically have no value go down in price. Consequently when you can’t be sure of the value of a share, you place more value in something physical just because it always has value; you can always use it no matter what is going on in markets.
Gold is the perfect example of the real asset; it always has been. Gold, because of its value as a precious metal that has been recognised as valuable since ancient times, has always acted as a real asset in times of market instability. This is because people always find value in gold, even when currency is inflating. It’s why nations around the world have gold reserves, to enable international trade in times when their currencies don’t hold much value.
Now we turn our attention to the current situation. The Ukraine’s Crimea region has been invaded
by Russia and the region has been deemed unstable. Furthermore at the time of writing gold prices
currently stand at $1,350.04 per ounce, only slightly down from a four month high of $1,354.80 on
Monday. See the connection yet?
The instability in the Ukraine has made people doubt oil availability; a large part of Europe’s oil comes from Russia via the Ukraine. Also threats of economic sanctions on Russia have made people doubt market stability. Therefore gold prices have risen because prices in markets have fallen due to instability in the region.
If this teaches you anything it should be that in online trading you always have to keep tabs on current affairs; if you don’t you could be left seeing your investments plummet in value. Always remember when financial assets and when real assets should be utilised to ensure success in the financial trading game.