8 months ago
Gold rose over 1% to reclaim its $2,000-an-ounce level again. This explosive growth spurt has totally surpassed analysts’ projections for the COVID-19 era. Why is gold still a safe haven? Is it too late to jump this trend and invest in gold? Get all your questions answered.
Gold is thriving during the coronavirus crisis, and it doesn’t surprise analysts. But the fact that the precious metal closed at a whopping $2,052-a-troy-ounce is mind-boggling. It’s a 72% rise since the rally began in 2018:
While markets crash, economies shrink, and unemployment rate surges – gold keeps its safe-haven reputation and proves a reliable commodity during the pandemic.
Why Are Gold Prices Soaring During the COVID-19 Crisis?
There was a short period in late-March when gold suffered a sell-off alongside the rattled markets. Investors were frantic and rushed to pursue cash-outs.
But once the storm subsided, buyers returned to gold, believing it is a safe store for their money. According to analysts, inflows into physical gold ETFs (exchange-traded funds) globally is around $12 billion.
There are four reasons why gold prices are on the uptrend during the pandemic:
Gold Is Stable
The demand for gold usually spikes during uncertain times.
Whenever anxieties about the resilience of financial systems arise, investors return to the old, reliable assets. Also, gold is immune to inflation and significant market fluctuations. The precious metal’s capital worth cannot be severely depreciated by external factors, sentiment, or other currencies.
The Dollar Is Weakening
Coronavirus contributed a lot to the weakened value of currencies, especially the dollar.
Investors outside the USA are in a rush to buy USD. Gold, being a metal that moves inversely to the currency, moves higher as the greenback plummets.
Since COVID-19 hit outside China, the Federal Reserve has done everything to keep financial markets stable and lower borrowing costs. As interest rates remained near zero, it was also decided to buy 100s of billions of dollars in bonds. This move has brought yields down, making gold more attractive to investors.
As gold prices soar, the media urges analysts and investors to talk about it. This extensive exposure to the positive uptrend gold experiences drives more investors to take an active interest.
Phillip Streible, a Blue Line Futures investor, was interviewed lately, predicting that gold will hit the $2,500 cap by the end of 2021. Once this was published, more investors contributed their 2 cents, forecasting a much faster uptrend.
Gold, being a metal that moves inversely to the currency, moves higher as the US dollar plummets.
Will Gold Rise Even More?
It’s difficult to imagine an economy that will thrive through the remainder of 2020 and the beginning of 2021. And it is precisely for that reason that pro analysts expect to see higher gold prices.
No one bluntly says that gold prices will reach a higher record, but they predict rates to rise even further before they stabilize around $1,500.
There is too much debt in global markets at all levels. All countries have borrowed from the future, without nearly enough economy to pay it all down. The entire world is heading towards financial repression. Gold will be one of the sole safe havens in this environment.
Is It Smart to Buy Gold Right Now?
The big question is: with gold notching an all-time high, should you buy gold stocks now, or take this uptrend as a sign that the precious metal is nearing a tipping point and avoid it?
Albert Cheng, CEO of Singapore Bullion Market Association, was quoted saying that the question is not “when to buy gold,” but rather, “how much gold to buy?”
“There is no good time to buy gold,” says Cheng, “Every investor should have some gold in their portfolio.”
When you invest in CFDs, you can make more agile pivots whenever gold rises or falls in price. It is also the best option to take advantage of the commodity’s profit potential without investing thousands of dollars for one share. But more on that in the following section.
How to Invest in Gold?
That bullish outlook suggests high potential returns ahead. Yet with prices already at multi-year highs, the entry costs are high, too.
So the best way to invest in gold is by trading the price movements rather than actually buying gold bars or expensive gold-mining companies’ stocks.
There are several instruments available for gold investing:
An ETF (Exchange-Traded Fund) is a way to invest in a commodity like gold by either buying for-profit or short-selling the underlying price in means of futures contracts.
Buying and selling stocks of companies directly linked to gold (gold-mining companies, gold producers). These companies are more volatile because they are exposed to stock market swings. In a bullish market, they do very well, but once the economy crumbles, they will be affected pretty fast.
Alternative assets such as gold-backed cryptocurrencies or forex trades offer a cheaper way to buy into gold. Alternatives require daily maintenance and experience.
CFD (Contract For Difference) is an alternative trading method to gain leveraged exposure to precious metals. You initiate an order to BUY or SELL a defined amount of gold, and your profit is determined by the change in the price of gold. Being a derivative, you don’t need to deal with buying and storing the commodity. Still, you can enjoy the profits as if you had.
Being a leveraged instrument, CFDs allow you to invest just a small fraction of the amount and still earn big.
Brian E. Murphy