Early 2020 has proved to be an interesting time for investors looking for a gold price increase as the coronavirus crisis continues to spook the markets.
At the latest estimate, over 43,000 cases of COVID-19, the new virus’ official name, have been confirmed in mainland China and beyond, while the death toll has risen above 1,000. The World Health Organisation designated China as having a Very High risk level in its latest risk assessment, while saying the global risk level was High.
Understandably, the growing number of cases and the reaction to the virus by Chinese authorities has led to equities becoming volatile, and investors piling into more safe-haven assets such as government bonds and precious metals leading to a gold price increase. This flight to safer haven investments goes a long way towards explaining why gold price is increasing.
For more information about the latest gold prices, check out our Live Gold Price Tracker.
Virus weakens China’s economy
As with the 2003 SARS outbreak, the spread of COVID-19 is likely to dampen economic growth in China, which is currently the world’s second-largest economy. This hit to growth couldn’t come at a worse time for the Chinese, as the economy is already facing significant headwinds, in the midst of an ongoing trade war with the United States.
Economic growth has already fallen to six per cent in recent quarters, a level below the depths seen during the 2008 financial crisis. The impact of COVID-19 remains unclear due to the lack of available hard data for early 2020, but economists expect factors such as the shutdown of businesses and travel restrictions could push growth as low as four per cent in the first half of this year, according to some estimates.
Such weakness in one of the world’s leading economic powers would do much to disrupt economic growth in nations with close ties to China.
In the meantime, gold prices have gained immensely, having risen over 12 per cent since the start of the year, to over £1,220 per troy ounce. Despite the sizable gold price increase in recent weeks, gold remains below its 2019 peak, but another shock to the global economy could be all it takes to propel prices to a new all-time high.
Gold rallies in deflationary environment
Gold’s recent price rally might baffle some, as a slowing Chinese economy represents a significant deflationary shock to the global economy at large in the coming year. Investors have often viewed gold as being an asset that typically performs exceptionally well in times of higher inflation, as opposed to times of deflationary pressure.
During the 1970s, both gold and oil famously enjoyed great bull markets, as the stagflation crisis hit industrialised economies worldwide. In the last few months, oil has been underperforming, especially since the outbreak of COVID-19, but gold has rallied higher and higher.
To explain this apparent divergence from the norm, it’s important to recall the performance of gold during the great bull run of 2001-11. Some of the greatest gains in the last great bull market for gold occurred during times of market turbulence, when deflationary shocks hit equities and pushed most commodities lower.
Gold continues to act as 2020 vision
Just four months ago, we told you that gold is a form of 2020 vision, at a time when markets remained volatile, and investors looked for safe places to make investments for the long term.
Gold as an investment is ideal, as the past few weeks have shown, with fear returning to the markets. This has led to a gold price increase that could allow the precious metal to make fresh highs imminently. It might be worth considering buying gold now to bolster your portfolio and protect it, in the event of persistent volatility in 2020.
To remedy shocks to the economic system, why not consider the 2020 Full Gold Sovereign?
Weighing 7.98 grams, VAT and CGT-free, the 2020 Full Gold Sovereign coin depicts Queen Elizabeth II in her 68th year on the throne, a fitting tribute to the stability of her reign, and surely a gold coin that could prove to be most invaluable stable investment in the coming years of market uncertainty.
In addition, we offer the 2020 1oz Gold Britannia. Struck in solid 24-carat gold, showing Britannia herself in all her resplendent glory, this coin makes for a suitable investment, and we’ve noted marked demand for it, so make sure to take a look at it while stocks last.
What next for gold in 2020?
Before the COVID-19 outbreak, there was an apparent mood of reflation in the markets, which displayed a risk-on approach, amid rising optimism that the global economy had turned a corner - despite a number of yield curves inverting (a good predictor of an imminent downturn) across the world.
The emergence of COVID-19, the Chinese government’s response and the potential hit to growth as expected by some economists highlights the sense of taking caution for so-called “black-swan” events.
A gold price increase has traditionally accompanied unforeseen periods of apparent instability - remember the Soviet invasion of Afghanistan in 1979-80, or the immediate aftermath of the Brexit referendum in June 2016 and a gold value increase would seem likely in response to COVID – 19.
Gold is an adaptable asset, and while it has been easy to assume it was simply dormant for a number of years, following its initial peak in 2011, uncertainty and human nature remain a fact of life. At times of peak stress, gold prices have continued to suggest sizable demand for the yellow metal, as the ultimate safe haven.
If you wish to learn more about diversifying your portfolio by investing in gold or other precious metals, don’t hesitate to get in touch with the Gold Bullion Company.
For more information about buying gold, call us on 01902 623 259, to hear from true specialists in the field of gold investments.
