Bond yields and stock prices have started plunging as financial markets worldwide rocked due to fears of the coronavirus pandemic’s impact on the global economy. It’s not only Covid-19, but also other issues the world is facing this year that affect today’s market. The continued spread of the contagion and economic pressure have a high chance of pushing the global economy into recession.
As an investor, you have surely heard a lot of people say that this is the perfect time to invest in gold and other precious metals. You might ask why gold? Is it worth investing in it in today’s market setting? Below you’ll find why gold is still an excellent investment choice in 2020 despite threats in the financial market.
Gold Is A Safe Haven Investment
Gold and other precious metals began an incredible bull run during the dot-com bubble. In late 1999, gold prices surged. They moved from just $300 to almost $2,000 per ounce after only a decade. People have seen how well investing in precious metals, like gold, helped them in 1999. It has, indeed, proven itself time and again as a real money safe haven during a bearish stock market. Your portfolio can benefit from it now.
Also, spreading your savings across different asset classes and stocks helps lessen the risk. As you probably already know, portfolio diversification is one of the, if not the, most important investing principle.
Diversification may seem silly when stocks are flying high, but it can be a brilliant move to have some gold investments in bear markets.
Gold Is Viewed As A Safety Trade
Primarily because they’re considered as hard assets, gold and other precious metals have always been viewed as safety trades. When investors seek safety, gold is an asset of choice since it’s now being argued as inherently more valuable than any currency backed by the government. Since they’re only supported by the promise of the government, currencies like Dollar and Euro are known as “fiat” currencies. The price of gold is driving up since many investors have actually started adding gold to their portfolios in these uncertain times of 2020. If you’re also looking at precious metals as an alternative investment, you might want to check out this new website Investing In Gold first and learn more about what can investing in gold do for you.
Gold Serves As An Inflation Hedge
Investors have seen the prices of gold soar while the stock market plunges over the past 50 years during high-inflation years. Because the price of precious metals tends to rise when there’s an increase in the cost of living, gold has historically been considered an excellent inflation hedge. With the crisis the whole world faces right now, one can expect an increase in production costs, especially raw materials. That said, inflation is likely to happen after the pandemic.
Gold also tends to rise along with everything else and be priced in currency units when inflation happens, while fiat currencies, like Dollar and Euro, lose their purchasing power. When a local currency struggles and people start believing that it’s losing value, people may be encouraged to purchase gold, further making this precious metal a good store of value.
Gold Is Inversely Proportional To Stocks
Gold isn’t meant to only be a mere investment portfolio sliver. It’s time for people to start thinking about it differently. Gold should be a cornerstone instead. It’s what makes a balanced portfolio.
You know that precious metals, like gold, do well even if the stock market is down. Gold also has shown to still thrive when the stock market is up. You can no longer treat gold as an afterthought these days, like how it was treated 50 years ago.
Uncertainty about trade wars, elections, interest rates, the coronavirus, and more have recently caused wild swings in the stock market. Such risks will surely have a serious impact on the broader economic environment. The good news is that gold will continue to thrive right now. It loves uncertainty. Investing in gold means getting protection or insurance from the current stock market’s wild volatility.
The Price Of Gold Increases Due To Supply Constraints
Since the 1990s, much of the gold supply has come from gold bullion sales from the global central banks’ vaults. In 2008, this selling slowed significantly. Since 2000, there has also been a decline in new gold production from mines. It’s a general rule that a reduction in gold supply increases gold prices. Note that bringing a new mine into production can take from five to ten years.
Financial markets hate uncertainty, but it’s now full of volatility and are currently turbulent. These kinds of daily swings are things that even investors with high-risk tolerance don’t like to see. Gold has become one attractive opportunity for everyone in today’s market setting because of the reasons above.