Gold Diggers hit the Jackpot in 2020
While the world is busy battling COVID-19 in 2020, the year has turned out well for gold diggers across the world. This year, investors have accepted gold as a vital portfolio hedging strategy. Currently, the world is moving from faster recovery (V-shaped graph) expectations from COVID-19 to slower recovery (U-shaped graph) potential as possible setbacks from repeated waves of infections (W-shaped graph) are hitting us. But despite the prevailing circumstances, the pandemic is going to have an enduring effect on asset allocation.
Gold performs much better as equities recover
The first half of 2020 saw gold performing remarkably well and increased by 16.8% to US-dollar. Gold even managed to outperform most asset classes. And by July end, LBMA Gold Price PM was looming around US$1,770/oz (the last time this level was witnessed was in 2012) as gold prices surged ahead in various major currencies.
The equity markets started to recover quickly from the Q1 lows around the world, but the amount of uncertainty around the Corona Virus pandemic paired with exceedingly-low interest rate boosted sturdy flight-to-quality flows. Similar to high-quality bond funds and the money market, investors favored gold in an attempt to reduce risk. The investors recognize gold as a hedge that was further underlined by the surging inflows witness in gold-backed ETFs. According to RPS gold, a renowned gold-dealer based in London, the current gold coin price is looming around 46 pounds/gm and 1460 pounds/oz.
Economic recovery will take different forms
The global economy is currently in utter shambles due to the COVID-19 pandemic. The International Monetary Fund or IMF has projected a 4.9% shrinking of global growth in 2020. The shrinkage is accompanied by mounting levels of wealth destruction and unemployment.
There is a growing unanimity that an expected V-shaped recovery is transforming into a slower U-shaped recovery graph. What’s troubling is that as the year draws to an end, the chances of recovery in the second half of the years is highly unlikely. The reason being a recurring wave of infections spreading around the world, slowing the global economy further, causing a W-shaped recovery.
The situation is troublesome for investors as it sends the uncertainty level higher with a probable long-lasting effect on each portfolio performance. But still, during these troubled times, gold can aid investors to diversify risks and may contribute positively to better risk-adjusted returns.
COVID-19 has turned the global economy upside-down
As the coronavirus pandemic hit the global growth hard, investors quickly turned to gold. The strong support for gold is due to major factors:
A rise in geopolitical tensions
Fall in real rates
Weakening dollar
Governments and central banks releasing stimulus to revive economies
As concerns over the pandemic grow, it is accompanied by tumbling relations between the US and China that encourage an investor’s fascination with gold. And more and more analysts are turning bullish over gold’s future. Goldman Sachs Group Inc. bet gold might reach $2,000 in the coming 12 months while Citigroup Inc. bet a 30% probability on gold prices pass 2k by the year-end.
Final thoughts
Currently, the future of gold seems positive as more and more investors try to diversify their portfolio. Key players from around the world like RPS Gold and Goldman Sachs are keeping a close vigil on the current gold coin price as the pandemic rages. But whatever you say, gold diggers around the world hit the jackpot this year.
