Covid 19 – All that glitters is gold

2020 will always be remembered as the year of the global pandemic. In financial terms, the pandemic caused disarray in the markets, with many big-name companies and sectors all but shut down as the world struggled to cope with unprecedented circumstances.

Through it all, however, gold continued to glitter. In 2020, the demand for gold as an investment hit an all-time high with an unprecedented total of 1,773 tons traded throughout the year. These figures, as supplied by the World Gold Council, represent an increase of 40% from the previous year. This demand saw a new high price set in August of 2020 when gold was being traded at $2,067 a troy ounce.

Gold. Always a safe bet?

Gold seems to prosper with market uncertainty, as the table below shows how it always seems to shine in a crisis. However, as you can also see, although gold has prospered in adverse circumstances, in the recent crisis the markets have not been as bleak as one might have supposed they should have been.
Crisis Period S & P 500 TR Index U.S Treasury Gold Bullion
2008 Global Financial Crisis -54.46% 15.80% 25.61%
2010 Eurozone Crisis -14.53% 4.47% 5.44%
2011 US Sovereign Debt Downgrade -12.27% 3.64% 7.86%
2015 China Yuan Devaluation -11.85% 3.50% 11.54%
2018 US China Trade War -19.34% 2.45% 5.14%
2020 Covid Pandemic 20.44% 5.03% 14.29%
Average Return -15.34% 5.81% 11.65%

The history of recent market crises seems to support the ‘Safe-Haven’ reputation that gold has traditionally offered. It is this detachment from the volatility of traditional stocks that has seen another upsurge in the value of gold investments throughout last year. While the markets did not do as badly as the situation possibly warranted, the fear of impending disaster sent many investors scuttling for the safety of gold.

Warren Buffet himself is on record as saying, “Gold is a way of going long on fear.”

The Future of Gold

This ability to buck trends in the middle of global crises is what drives the surge in gold investments during each situation. But each crisis must come to an end and, with things looking more positive with the advent of worldwide vaccination programs and a return to some sort of normality seemingly just around the corner, just how is the gold market going to perform?

It looks promising. While the war against the pandemic is hopefully concluding, the aftermath is going to rage on for years. Worldwide uncertainty is still going to be the norm, not helped by additional factors like Brexit and other geopolitical tensions.

If the economy continues to slide downwards then the value of gold is expected to keep breaking records. Some experts have predicted that gold could reach as much as $2,500 and the most extreme estimates have put this figure as high as $3,000. Regardless of how it plays out, it seems that once again gold’s ability to buck trends and act as a comfort blanket in times of need has once again come to the fore.