When the COVID-19 pandemic swept the globe, it decimated the stock market. The stock market has started to rebound, but financial advisors fear that the rally could be short-lived and fail to provide the support the central banks need during and after the pandemic. To compensate for this, financial advisors are recommending that their wealthy clients pad their portfolios with gold.
A Hedge for Inflation and Deflation
While financial advisors wait for the stock market to fall again, gold prices are on the rise. As of June 19, 2020, prices were up by 14 percent compared to the start of the year. That puts it at $1,730 an ounce.
Financial advisors believe that gold will continue to rise, making it a solid hedge against deflation and inflation. Some even think it will make it to $2,000 an ounce, which would be a record high. This is seemingly likely to occur if the pandemic continues to worsen.
At the same time, financial advisors fear the monetary policy at the time of the pandemic will further weaken the dollar. The very idea of this happening has made wealthy investors nervous. The anxiety is causing them to consider gold and oil while leaving other investments behind.
As the economic future of the global economy remains cloudy in a recession period, “Gold has proven to be the place for investors to gain during the last three major recessionary periods. In 1990-91, 2001 and the 2007-09 global financial crisis, it has increased in value,” Says Giles Coghlan chief currency analyst at brokers HYCM.
Right now, wealthy investors seem to be flowing around 10 percent of their portfolios into gold, while some suggesting 10 percent is a minimum in this current environment, such as Jasper Lawler, head of research at London Capital Group. Older investors are the most likely to fear inflation, as they’ve seen it in action over the years. They realise that inflation can wipe out their wealth, so they are quickly moving to gold.
“Gold has proven to be the place for investors to gain during the last three major recessionary periods…”
Giles Coghlan, Head of Research at London Capital Group
Gold Investment Options
People have four options when investing in gold. They can invest in index funds, derivatives, gold mining companies, and actual gold. Each of these options serves as a hedge against inflation and deflation. However, physical gold is typically considered the wiser investment during an economic downturn. Investors own the gold, and have direct control. This eliminates counter-party risk.
As the pandemic worsens, more and more wealthy investors are turning to physical gold. This uptick is partially due to the disruption in the physical gold supply chain in March and April of 2020. The Perth Mint for example reported its highest demand levels since 2013, while other Gold suppliers were out of stock of popular items. This was as the gold market was hit with complications in production, transportation and refining. There is a fear that if that happens again, people who waited to get physical gold won’t have the chance. Because of that, many wealthy investors are snagging it now while they still can.
Storing Physical Gold
Investors who choose to buy physical gold have storage options. While some choose to store it at home or a bank, many go with a private safe deposit box. This provides more security and flexibility, and investors can access their gold at any time.
Regardless of where investors choose to store their gold, many agree that it is the wise decision in 2020 and beyond. The pandemic has proven that paper money isn’t stable. A single crisis can devalue it, making a strong case for investing in gold.
