If as a finance person familiar with precious metals or the financial news from more than a half-decade ago you remember what happened in 2009 to 2013, then the current financial market in 2020 with the COVID-19 virus scare may almost seem like déjà vu. Gold is back and with a vengeance, that’s because when times get hard, people put their money into the precious metal for value protection. All one has to do is look at the ten-year charts to see the evidence. Gold in NZ is at record high levels and continues to look very strong.
History Repeats Itself
Back in 2013 people thought that gold had finally lost its lustre. Dropping from a high of almost $1,900/ounce to $1,300/ounce and lower, folks thought gold had had its day and was no longer needed as a hedge. So, it floundered in that range of $1,300 to $1,400 for years, until 2019. And then things took off again. In the overall picture, if one had held their position in gold from 2013 to now, they would be looking at a very nice appreciation on their investment right now in the first quarter of 2020. And given the serious shakiness in the market for what may be at least the next year or two, gold is looking attractive enough to keep climbing higher.
The Current Market Weakness is Fundamental
The fact is, the COVID-19 virus scare is really hammering economic markets at their heart, the labour resource. And the longer it takes people to get back to a normal work condition, the longer the economy will suffer from long-term ripple effects. The formula is very straightforward. As people stop going out, they stop buying. As they stop buying, companies have to cut back. As workers are furloughed or laid off, buying power decreases further. It becomes a vicious cycle that can drag an economy down for years. The government can try to pump funds into the economy, but that can lead to devaluing of the currency, which in turn also decreases buying power too. So, cures have to be planned carefully so as to not aggravate the problem trying to help it.
The bigger picture economy will continue to rumble in a downward, uncertain status until a vaccine is developed or the COVID-19 virus runs its course through the population. During that time significant investment will continue to pull out to protect value, driving the markets down further. The same behaviour pattern played out during the uncertainty of the elections in 2000 and when the real estate bubble popped in 2008. And that leaves alternative choices like precious metals as the catalyst for ongoing value protection.
Gold Has Always Been a Safe Harbour in Tough Times
The safe-haven attraction of having a share of “my gold” is not a new phenomenon. It goes back centuries to the ages of kingdoms and empires in every part of the world and ancient history. That said, gold is pure speculation; it provides no operational benefit, and it can’t be utilized as a consumable. So, it has fluctuation often influenced by when times or good or challenging.
Gold price history struggled in recent years to break the $2,000/ounce mark, but 2020 may very well be the year that history is made in multiple ways. As investors align themselves in safe-havens, the demand for gold will continue, making it an ideal place to invest in for the next few years until the virus and current economic uncertainty are resolved. Part of what also drives the price of gold to rise higher is the trust in the government or lack of it. As governments struggle to respond to the virus, gold becomes more and more attractive as well because the metal’s value is not controlled by them as currency is. This too adds to the push upwards in the spot price.
There is Going to be Room for Growth
There is no question that gold provides a hedge to current times and anxieties in the public markets. However, if anyone thinks the current value is topping out, all indicators of the gold prices coronavirus scenario are signalling a stronger push higher this time, making room for much more value gain over the next year or two, especially if the virus situation continues unabated by government response.