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Gold - A Safe Asset Amid Coronavirus Turbulence

Friday, March 20, 2020

It is difficult to have been able to predict how quickly markets can deteriorate, but 2020 has continued to prove just how volatile they actually are. COVID-19 began as very much a Chinese health issue, but the virus has now developed into a global story.

Markets have reacted sharply to its spread, and this makes it clear which assets are best-suited to navigate these choppy waters. Stocks have been one of the biggest losers in recent weeks, having corrected sharply on expectations that the virus will weaken economic growth. In contrast, gold has rocketed to new highs in pound sterling terms.

Read more about what COVID-19 means for gold as an investment.

Assets jostle for the top spot

Investors traditionally juggle a number of assets in any given year - stocks, bonds and commodities, for example. Diversity is crucial for any portfolio, as some assets move in tandem, and some go down at once. It helps to have an asset with a negative correlation, which moves higher to compensate.

As stocks and shares have lost value in recent weeks, on fears about the spread of COVID-19, markets have priced in the prospect of central banks stepping in to cut interest rates. As a result, bond yields have fallen ever closer to zero, as bond prices have hit new highs.

If inflation continues to run at two per cent over the long term, investors will lose money in real terms, by a significant margin.

Gold is able to enjoy the price rally that bonds have seen, but as it doesn’t have a yield as bonds do, investors have benefited from a price rally without having to worry about diminishing returns as bond investors have seen.

Stay up to date on gold prices, using our Live Gold Price Tracker.

Volatility returns to the markets

For a number of months, volatility appeared to have dissipated, after a rocky 2018 in particular. We’re barely three months into 2020, and volatility has spiked again, with emergency interest rate cuts to allay fears of a global slowdown. Early data suggests that COVID-19 has had a particularly negative impact on the Chinese manufacturing sector.

This could lead to a spill-over effect, given that the world’s second-largest economy is effectively at a standstill, having been a dynamic source of economic growth for years. Gold prices are rising, as gold is pricing in a desire for safety by investors.

Precious metals such as gold have a history of spiking during times of great uncertainty - the 1979-80 Soviet invasion of Afghanistan, or in the aftermath of the EU referendum in 2016. Gold spikes during times of peak stress in the markets, and if you have a little bit of gold in your portfolio already, you can attest to having made some decent gains already.

Stocks and shares relate to businesses which can fall foul of economic downturns, causing them to collapse entirely, if sentiment worsens to an extreme extent. In comparison, gold is gold and always will be. You can invest in this asset, knowing it won’t go bankrupt or request a bailout, as financial institutions did in 2008.

Something which has contributed to jittery market sentiment is the uncertainty about just how many people have been infected by COVID-19. The official global count suggests over 100,000 confirmed cases, and over 3,000 deaths. However, not all countries count cases in the same ways, meaning these numbers could be more retrospective at best.

A global story that helps gold

The COVID-19 story has been quite so powerful because of its global impact. What allegedly started as a Chinese health issue in a wet market in Wuhan has now spread around the world. The majority of cases are estimated to have stabilised in China, largely thanks to the Chinese authorities being more capable of using draconian measures to put the country on lockdown.

Liberal democracies such as the US, the UK and Italy might not be so capable of adopting such measures, meaning the virus could behave in a different way entirely. In the meantime, it helps to stay informed and keep track of case numbers as this story continues to evolve.

Check out this COVID-19 dashboard, to view the latest estimates for infections.

Suitable gold items to consider investing in

Whatever happens, gold has certainly been a great beneficiary of the market turbulence.

The Gold Bullion Company has a number of gold items to consider investing in, to secure your wealth and weather any stress in the global markets. Prices have spiked to as high as almost £1,300 per troy ounce, so any item you choose, whether that’s gold coins or bullion, it will be worth more now than ever before.

Consider our 2020 1oz Gold Britannia coin – priced at £1,339.96 at the time of writing, it is VAT-free and exempt from Capital Gains Tax. To really seal the deal, we guarantee free delivery. Alternatively, we have a range of gold bars, from just one gram to bars weighing 100 grams and above.

Want to be able to invest in gold but need a safe place to store it? We offer 12 months’ free allocated storage solutions. This ensures that any gold item you purchase can be locked down in maximum-security storage away from your home, with at least a year’s free storage. Following this 12-month period, you can continue to store your gold with us for as little as £6 per month.

Whichever way you choose to invest in gold with the Gold Bullion Company, it’s clear that gold is in a bull market, and could move higher and higher, while concerns over COVID-19 continue to grow. Call us on 01902 623 259 to get in touch today.