Gold investment – hedging your bets during turbulent times

Traditionally gold is considered an effective investment defence strategy against the financial impact of social and economic uncertainty and upheaval. As market rates plummet and stock markets suffer, savvy investors are hedging their bets and investing heavily in the gold market. 

Gold is a hedging mechanism when real estate, commodities and equities markets experience swift downturns and as quantitative easing sends interest rates south. 

Gold and the stock market are separated by a fulcrum, a pivot point. When stock markets downturn, or environmental and economic conditions threaten negative trends, the demand for gold increases as investors turn to this safe haven investment. 

Savvy investors are using gold to hedge their financial bets.  

HEDGING YOUR BETS DURING ECONOMIC INSTABILITY 

Gold is easily the oldest form of wealth; through centuries of change it remains sought after and is especially valuable during turbulent times. 

Gold is a stable and reliable investment in an environmental, social or geopolitical crisis, such as the one we are currently experiencing during the COVID19 crisis. 

The trend towards gold investment that we are currently experiencing is unlikely to change as we navigate the unchartered waters of the economic impact of COVID19. 

AN INSULATED ASSET

Gold prices are considered relatively insulated from the economic, environmental and geopolitical risk factors associated with the stock market. 

Gold benefits from a large global market and is valued equally country to country. 

Gold has high liquidity yet is widely available enough to trade, and still considered a relatively rare, finite asset and is valued accordingly.  

Gold is a high quality, hard, tangible asset. It is not consumed like typical commodities; 1kg of gold will always be 1kg of gold. 

A HISTORICAL GLANCE AT GOLD AND GLOBAL FINANCIAL INSTABILITY 

Historically, investors concerned with economic uncertainty flood the gold markets, seeking a stable and tangible investment. 

The trend was observed during the early 2000s after the attack on the World Trade Centre and US military action in the Middle East triggered a decline in stock market confidence and a contrary rise in the gold market. Gold’s liquidity capacity and its versatility as a hedging mechanism make gold the go-to asset during turbulent financial and social times.  

This is a phenomenon the industry observed during the Global Financial Crisis. The real estate, commodities and equities markets slumped, and billions of dollars flocked to safe haven assets, led in gains by gold.  

Gold nearly doubled in value during the lifespan of the Global Financial Crisis, from $US836.50 per gram closing in 2007 to $US1,664.00 closing in 2012. 

COVID and GOLD and AUSTRALIA 

During the world-wide COVID-19 pandemic we are observing gold as a safe haven asset, as the global health crisis quickly becomes an economic one. 

From midday March 23rd 2020; Australia’s national shutdown was initiated, enforcing closure of countless businesses, standing down millions of employees and other workers told to stay home. This sparked the most economically unpredictable time in Australia’s history. 

Investors, concerned for the financial stability of their real estate, commodity

and equities investments turned to gold’s hedging value to minimise their overall risks.

In April 2020 Perth Mint alone reported gold bullion sales of more than 300% than in previous months to 2012. 

In mid-March the Royal Bank of Australia announced it would commence quantitative easing, slashing interest rates to a record low of 0.25%. The expectation of a near 0 interest rate to stimulate economic recovery (announced by the Federal Reserve policymakers in June) is predicting an even steeper demand in gold. 

GOLD ROCKETS TO 8 YEAR HIGH 

As global supply chains suffer and worldwide tourism halts and trade with China slows, June 2020 reported an 8 year high in gold value as investors flocked to the safe haven of gold investment. 

The weakening US dollar and America’s rising COVID infections continues to stimulate the price of gold worldwide. 

Gold contracts for August delivery are at $US1777 per ounce, the highest levels since 2012. Considering the weakening US dollar, the win for Australian investors in gold is even more attractive. 

HAVE YOU MISSED THE BOAT?

The road towards economic recovery is the road towards diversified investments. A gold security provides the investor with highly desired liquidity options. When you consider that gold’s value tends to be inversely related to the stock market, savvy investors are continuing to add gold to their investment suite. 

Gold is predicted to experience a continued climb, as the world’s attention is focussed on an effective COVID vaccine and the WHO predict it may be up to 2 to 2.5 years before an effective vaccine is available worldwide. Investors are hedging their bets by investing in gold; a savvy move as the economic and environmental uncertainty predicted for the following years plays out.  

Investors are turning to gold as an insurance hedge against market volatility. Gold is the world’s oldest investment and historically investors have turned to the market as an economic safeguard. In the face of complete global uncertainty, near 0 interest rates and steep economic downturns, gold is again an international investment go-to. It is unclear what the future of COVID as a health and social crisis holds for the world’s community. While the uncertainty continues it is more than likely we will see the value of gold concurrently rise. 

Disclaimer: This material is researched market commentary and not trade recommendations. We source our information from respected industry publications and announcements that we deem reliable. This is general information and may not relate to your unique circumstances. Market performance and futures are discussed as observations and predictions and are not indicative of future performance. This article is not investment advice, please seek independent financial advice from a financial professional. Meld is not a financial advisor.