The year 2020 has been very negative in many aspects, mainly due to the Covid-19 pandemic, which has claimed thousands of lives globally and has caused an economic crisis unprecedented in recent history.
On the other hand, for investment assets considered Safavids, precious metals stand out; 2020 has been very positive, with significant revaluations, as we have seen in previous posts. The slow recovery that the global economy will experience means that there are compelling reasons to continue to rely on gold investment.
Why does everyone invest in gold?
Gold never paid off! No interest or dividends, unlike bonds and stocks. On the other hand, its prices can appreciate, particularly in periods of political, economic, or financial instability, as currently with the episode of Covid-19.
At the end of February, the ounce crossed the threshold of 1,600 dollars for the first time in seven years. Over one year, it has increased by nearly 25%, and over five years, the gain has even reached 40%.In recent years, the paradox is that gold prices have risen at the same time as asset classes deemed risky, such as stocks, and other safe-havens, such as bonds and the dollar.
So here are five reasons why and how to buy gold stocks in this COVID Pandemic.
1. A strong story
Gold is a safe investment option, during or after a crisis, because it has been proven to work overtime. It is a useful asset that has retained its value over time. In many countries, people invest in gold and pass it on from generation to generation to ensure that their future generations can access an asset worth something even in times of crisis.
Some even view gold as the weak US dollar. It is a fact that when the value of gold falls against other currencies, investors turn to this precious metal. Therefore, gold prices rise when one of the most important currencies faces challenges.
2. A safe investment
Gold has proven that it is an excellent hedge against inflation. It is a scarce commodity, so its prices will rise over time no matter what the global economy is facing. During years of high inflation, gold prices typically soar while the stock market can plunge. Gold is also a wise choice when the local currency is losing value.
Besides, it is also a safe asset during deflation. It is a time when business activity declines, prices fall, and the economy faces excessive debt. During deflation, people want to accumulate money, and gold is the most comfortable option for them.
3. An option of choice in times of crisis
Gold is a safe investment option at such times because it can be trusted more than in the stock market, and it will not lose its value even if there is a health crisis. The demand for gold is still there. Investors want to put their money in this asset to secure their future and future generations.
Therefore, the demand for this precious metal is generally high. Precious metals like gold work well during economic uncertainty or crisis like the coronavirus.
4. Gold investment versus other assets
Historically gold maintains an inverse relationship with the stock markets since the precious metal is considered a protection against instability in the capital markets.
Precisely, the good results obtained by the stock exchanges in the 2016-2019 period, in the heat of a strong dollar, caused investors’ interest to move away from gold, which influenced its price.
In an environment of historically low (and even negative) interest rates, which will continue for the next few years, as confirmed a few weeks ago by the Federal Reserve; it is not surprising that investors have turned to other assets of a defensive nature, like precious metals.
5. Geopolitical reasons
In addition to low-interest rates and low returns on other assets that gold competes with, the metal continues to attract investors due to the complex geopolitical landscape we face, which will keep volatility high in the short term.
This must be added the growth in the rate of coronavirus infections and the possibility of more restrictive measures being adopted in various European countries, which could worsen the economy’s state. All this seriously worries investors.
However, the medium-term outlook is very positive for gold. Everything indicates that the macroeconomic environment will continue to be in a difficult situation, which will benefit those who invest in gold.
More and more people are launching to invest in gold before the current financial situation that is hitting the world. We see how a gold rush of unprecedented magnitude is infecting investors across the globe who rush to buy gold as if there were no tomorrow.
And no wonder. Both the European Central Bank and the US Federal Reserve are taking measures to mitigate the current financial crisis that can irreparably damage the future of the euro and the dollar, taking down anyone who has savings in either of the two currencies.
Indeed, everything indicates that the price of gold has just started an upward race, the end of which could be years away. We are in a significant historical moment to buy gold.