As COVID-19 Looms, Gold Becomes a Financial Savior

Posted in E-Financial by Adolf on Jun 27,2020 293

When I was small, I always used to see my mom keep some money aside in a small wooden box, hidden under a stack of her freshly washed clothes in the cupboard. Whatever amount she earned through her small home business; she saved some of it but also made sure my dad did not know about it. One day out of curiosity I asked her what she does with that money, as I never saw her use it for her own purposes. She said she buys gold bars depending on the amount she has saved, so that it may be used for any kind of expenses that the family may have or need in the future. That was the day I learnt what a meaningful investment actually meant.

As COVID-19 Looms, Gold Becomes a Financial SaviorDuring times of uncertainty and economic recessions, consumers, investors and businesses seek the protection of gold. Gold’s strong prices act as a cushion, protecting investments in times of high market volatility and inflation. Also with the COVID-19 outbreak, this is no different as investors rush to buy as much gold as possible in order to offset their investments and produce profit.

Even though historic evidence indicates in times of recession usually gold prices increase and last as long as the recession until they return to normal levels when the economy returns to normal, the COVID-19 outbreak is a crisis like no other, something which has not been witnessed since the first world war. Reports of job losses, slowdown of product demands, trickling liquidity crunch and downfall of the stock market are some of the major outcomes of the deadly virus. Predicting future price fluctuations of gold, is quite challenging as it is difficult to identify the best variables to consider, the best forecasting tools and to interpret the results with validity and integrity.

Investing the Right Way- Given the impending threat on the economy, builders and housing finance companies are trying to draw potential buyers with attractive discounts and loan rates. As the current situation is unlikely to improve soon; it is not advisable to invest in property unless someone is going to buy it for immediate use. In such events of doubts, investors usually tend to invest in gold since it helps to partly mitigate the market crash of recent times. However, when investing in gold, avoid buying gold ornaments as the making charges reduces the value of the returns. Besides bullions, one can also go for gold ETF (exchange-traded fund) or gold sovereign bonds.

Gold can be a safe haven for individual consumers, investors and big financial institutions in cases of recessions and financial crisis. However, there are many reasons of why people are buying gold such as in the form of strategic investments, offsetting loses, in the form of jewels and high quality products and many others. Thus, gold purchases vary and are based on individual preferences. Furthermore, there is a number of factors inflicting fluctuations on price of gold, with the most common one being consumer demand and the strongest being central banks, the strength the US dollar and supply of gold. Since the COVID-19 outbreak investors and consumers have rushed to offset their losses due to a volatile stock market, inflation expectations and cities lockdowns, which have a massive impact on the economy in general.

The COVID-19 outbreak has created panic among investors, due to supply chain disruption and a massive decrease of consumer demand. Because of that markets have become highly volatile, while the US S&P 500 has experienced a dramatic decrease. This has made the US stock market experience high levels of volatility forcing. Thus, in order for investors to safe guard their investments under a fear of future supply chain disruption and economic gold prices have become incredibly important. Due to investors experiencing major losses due to a volatile market, many have opted to sell-off their gold positions on March 11th, decreasing gold prices for the month. On the other hand, gold-backed exchanged trade funds have increased dramatically, as investors are looking a way to profit from gold prices without owning the actual precious metal.

For ages people have respected gold for its high value and rich history. In many cultures gold is preserved as family wealth and has been passed to one generation from another. As recession approaches, gold becomes a critical financial instrument. Now even economies have recognized the worth of the metal, owing it to be the best form of insurance against hard times, especially when other forms of currency have failed to work. Also known as the commodity of crisis, the rate of gold can become unstable but it is sure to maintain its worth in the long run.

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