The price of gold is currently higher than ever*, and analysts predict that it will continue to rise. The COVID-19 pandemic, lockdown, and restrictions have caused uncertainty in the market, prompting investors to put their capital into a safe investment such as gold. The sudden, drastic increase in demand for gold has caused prices to rise, resulting in the current high price of gold. Given that the COVID-19 pandemic is not abating, and a so-called second wave is even expected, analysts' expectations regarding the future price of gold are fully justified.
If gold is a safe form of investment and many people, fearing the deepening crisis caused by the pandemic, are securing their savings by exchanging them for gold, where did the idea to sell gold come from? Gold is an excellent alternative for people who have assets and are looking for ways to diversify their investment portfolio. However, for those heavily indebted by a mortgage, this is an excellent opportunity to pay off their debts.
EXAMPLE
Let's consider a young married couple who, in September 2015, take out a 30-year mortgage loan of PLN 200,000 (margin 2%, interest plus WIBOR 3M 3.73%, installment less than PLN 964). Thus, after five years, the couple would have repaid approximately PLN 33,754 of the principal alone, meaning that the outstanding loan amount would be approximately PLN 166,246.
Probably each of us has some gold jewelry that we don't wear: souvenirs from baptisms, communions, gifts, wedding rings from our grandparents, etc. – the same is true for married couples. Let's assume that they have a total of about 35 g of gold in jewelry of the most popular 585 fineness. This is not a difficult result to achieve. 35 g is in fact the total weight of several rings and chains. At the current gold price, the value of this jewelry would be close to PLN 4,500. Meanwhile, if the same jewelry had been sold in 2015, when the couple took out a loan, its value would have been almost half as much, i.e. around PLN 2,300. What does this mean for our couple?
If, at the time of concluding the loan agreement, they had sold the jewelry and taken out a loan that was $2,300 lower, they could have shortened the loan period by three months with a similar installment amount. Meanwhile, if they sold the gold now and used the funds to repay the loan early, they could shorten the loan period by as much as 10 months with a similar installment amount. This means nearly a year less of paying installments thanks to the sale of jewelry that was not worn anyway.
CONCLUSIONS
For years, gold has been considered a safe haven for investors looking for alternative ways to invest their capital. However, for people with large debts, such as mortgages, it is better to do the opposite—sell gold at a high price and reduce debt.
* Gold has been traded globally since 1968.
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