Through the ages – the one metal that’s always held its value is gold. Crowns were made from it and kingdoms judged how rich and powerful they were based on the gold they had.
In crisis, we always look for comfort – in gold. The current COVID-19 crisis is no different.
An earlier report in the Financial Times quoted Chris Mellor, head of Emea ETF commodity product management at asset manager Invesco,“There’s a lot of investors looking for somewhere to hide and gold is in the sweet spot there,” he says. “In the worst-case scenario there will be a contraction in global economic capacity and in that environment gold is a very good place to be.”
But why is this? There are several reasons. We will look at three here.
The first is this — gold is known to hold its value – not just for a few years or decades – but for centuries. The metal has been seen as the way one generation passes on its wealth to the next in many societies across the word. Just look at the performance of gold over the past 20 years. In most years there has been a year-on-year growth in the value of gold.
The second reason: gold is seen as a defender against inflation and deflation.
In a column for Forbes magazine, Rainer Michael Preiss says, “If there’s a systemic banking system financial crisis due to coronavirus, gold will do incredibly well, because it’s outside of the traditional fiat currency fractional reserve banking system. If there is a global debt deflation, gold will do extremely well.”
The third reason is this – during times of uncertainty gold is seen as the best way to diversify your portfolio.
A report on CNBC says, “Gold may not have high returns over long-term horizons but is a great hedge when equity falls. It lowers the portfolio volatility and gives some bit of downside protection. There are many ways of investing in gold such as sovereign bonds and gold ETFs.”
An earlier report on CNBC.com report quoted analyst at BNP Paribas, which is a really good concluding thought.
“The recessionary fallout of the Covid-19 outbreak on the global economy suggests investors are likely to continue to seek refuge in gold,” an analysts at BNP Paribas said in a note. “We expect demand for gold to remain strong, at least until such time that economic conditions stabilise and the outlook begins to improve following the raft of unprecedented stimulus measures put in place by governments and central banks alike.”
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