Today, it’s soaring close to all-time highs. But let’s step back to consider how the yellow metal reinforced its safe haven status during these tough times.
With gold blazing past seven-year highs and currently well above $1,700, CNBC’s Vicky McKeever went over what makes gold stand out in times of crisis. During periods of peace and economic prosperity, gold is mainly used to hedge a portfolio from unexpected downturns and crashes, as well as preserve one’s savings by acting as a shield against inflation.
Perhaps most importantly, however, gold is held as a safety play in case things go truly awry and confidence in most or all assets and currencies becomes diminished. The yellow metal has more than earned its merit in this regard, as it is the world’s oldest currency and has held its value exceptionally well over the centuries. Being easy to store and move around and immune to decay, it acts as a guarantee that the owner will retain their wealth in any scenario.
As Adam Vettese, a market analyst at investment platform eToro points out, no other asset class can make this claim. One need not look past the many blue chip stocks that have crumbled in recent weeks to see that there is no true safety in the equity market, and the same can be said of fiat currencies due to their lack of staying power throughout history.
The shock of the coronavirus crisis, and gold’s response to it, highlighted all that gold has to offer and more. As the pandemic placed the global economy into question, investors sold off their assets in a rush to liquidity of rare magnitude. Gold was part of the March selloff, yet even in the worst of times, managed to hold onto its six-year highs above $1,400. Investors who are in tune with happenings in the gold market might not have been surprised, as the metal is not only the premier safe haven but has also been soaring since mid-2019 on the back of numerous factors that were aggravated by the crisis.
Once the selloff simmered down and unprecedented money printing was announced, the currency that so many flocked to was now also being questioned. Gold had already showed remarkable strength over the previous months by climbing alongside the dollar despite their well-known inverse correlation. As the Federal Reserve announced that it would pump trillions of dollars into the economy, it became clear that inflation was going to become a persistent issue. In short order, gold recently continued its climb to reach $1,769, its highest point so far this year.
Besides quantitative easing (QE), the Federal Reserve once again slashed interest rates, making the dubious bond market even less appealing. With flimsy bonds and the assured prospect of inflation, havens are few and far between in a time when fear is gripping the global market. Yet despite so many price drivers, it pays to assess one’s options when actually investing in the metal. As Sheridan Admans, investment manager at U.K. stockbroker The Share Centre notes, investing in derivatives exposes investors to the same risk that the broader market finds itself in, as they are invariably tied to a certain company. With this in mind, it’s no coincidence that the gold market found itself facing a major supply glut over the past few months, with people around the world clamoring to get physical gold irrespective of premiums and mintages.