While many sectors have disappointed investors during COVID-19, there are some notable markets that have seen their performance improve, rather than decline. One such market is gold, with some funds, according to Chelsea Financial Services, seeing returns of over 50% since January 2020.
Gold is often seen as a defensive asset, generating no income and producing nothing. Therefore, some, like Adrian Lowcock from Willis Owen, say that it should be seen as an insurance policy. “Typically”, he says, “I would suggest holding around five percent of gold in your portfolio to offer a cushion in volatile markets”.
But, with COVID-19 battering many other sectors, is this still the case?
The case for
“Providing liquidity as a solution to the uncertainty” is how Krishan Gopaul of the World Gold Council describes the gold sector. Essentially, he – and many others – believes that, during times of great economic pressure, gold is an asset that will hold its own.
For some, it won’t just hold its own – it’ll continue to follow its recent upward trajectory. Peter Grosskopf of asset management firm Sprott says the circumstances “point to gold over $2,000 sometime late this year or early next”.
Citi agrees. Previously, gold reached a historical record price of $1921 per ounce in September 2011 – they, however, are confident that the price will break the $2000 mark in 2021. And with Energy & Capital proclaiming that “gold is going to be the best investment over the next five years”, it is easy to see why many are considering gold as their next investment.
The case against
By its very nature, gold can’t default or go bust. During this pandemic – the most significant economic slump in recent history – this has been a positive.
That’s not to say that there is no volatility in this market. Mining has been disrupted (in South Africa, for example, national production sank by 3/5 per year in April alone), and the ability to transport this precious metal has been reduced. Some, like personal finance journalist Harvey Jones, talk of how the current high gold price makes them “wary”, believing that “it leaves you vulnerable to a correction”.
However, with the World Gold Council revealing that central banks are increasing their gold holdings, it appears that the fear of another financial crisis like the one caused by COVID-19 could boost gold prices further, meaning potential good news for private investors. While gold may be less volatile than other investment types, it remains to be seen whether the bull market predicted by many materialises.
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