Hedging and Speculating Discussion and Responses

Discuss the following question: Commercials suggesting that “buying gold” would be a wise decision are commonly aired. Explain the difference between “hedging” and “speculating” by explaining why someone who wishes to “hedge” against inflation might choose to purchase gold. Explain why someone who wishes to “speculate” might also choose to purchase gold. Relate the motivations of “hedging” and “speculating” to the topic of Christianity. You must submit 1 thread of at least 250 words and cite at least 1 source in addition to any Scripture verses cited.

Respond to at least 2 classmates’ threads and discuss whether or not these topics/questions can be related to furthering the Gospel message. Are there biblical elements that can be incorporated or pulled from these topics? Each reply must be at least 100 words.

Classmate I

Hedging and speculation are two of the most important purposes for investors in financial markets. Hedging is a risk management strategy in which is followed by people who already have some exposure in September. For example, a US firm may have exported goods to the UK and will have a pound receivable in the next three months. The US has exposure to pound and is afraid the pound might weaken the USD in the future. If this happens then it will end up being lesser amounts of USD for exchange with the UK. A speculation does not have exposure to underlying but willfully create exposure to exploit a price belief. If a person were to create a position for stock in Microsoft it will go up by 6% in the next month or so. This will create a long position on stock with Microsoft and enjoy the potential upside to buy the stock or future stocks for that matter. This technique is risky because it could also go the other way around and be a downside and cause him to lose money.

Gold is considered a natural hedge against inflation. In fact, other examples include corn, silver, energy, etc are all hedges. The prices are set by the supply forces and inflation is automatically captured in prices. Any person who dears the rising inflation will buy gold as gold prices are a minimum. Gold is considered a safe haven and can reap good returns compared to equity and bonds.

In Psalm 146:3 it states, “put not your trust in prince, in a son of man, in whom there is no salvation.” This verse talks about how we should not put our trust and money into the gold market. The reason is because we do not know what will happen as a result. We should use our money to honor God and put out money to good uses.

Classmate 2

the topic of investing in gold is one that I do back and forth on. I can understand someone who is trying to escape the risk of the stock market by trying to invest in gold, but I am often skeptical with precious metals, as it seems that most of the people who preach about the great investment opportunities in gold are often trying to sell it. Hedging, in terms of investing, is when someone is trying to minimize or escape financial risk with their investing. Someone who is more speculative is trying to ensure that they can receive a profit, so they may branch out to more diverse opportunities. So when it comes to gold, someone who does not trust the stock market may invest thinking that physical gold will be safer than stocks. And someone who is more speculative may trust the stock market but just wants to make sure they get profit so they may also buy some gold to diversify. I can understand the reasoning behind both outlooks. As Christians we should strive to be great stewards of our resources and both outlooks are trying to manage money, one is more outgoing while the other is more on the safer side. Luke 14: 28-30 says, ” For which of you, desiring to build a tower, does not first sit down and count the cost, whether he has enough to complete it? Otherwise, when he has laid a foundation and is not able to finish, all who see it begin to mock him, saying, ‘This man began to build and was not able to finish” (English Standard Version, 2001).

References

English Standard Version Bible. (2001). Crossway Bibles.

Shahbaz, M., Tahir, M. I., Ali, I., & Rehman, I. U. (2014). Is gold investment a hedge against inflation in Pakistan? A co-integration and causality analysis in the presence of structural breaks. The North American Journal of Economics and Finance, 28, 190–205. https://doi.org/10.1016/j.najef.2014.03.012

Sproul, R. C. (n.d.). What is biblical stewardship? Ligonier Ministries. Retrieved October 5, 2021, from https://www.ligonier.org/learn/articles/what-biblical-stewardship.