Gold: the impact of a global pandemic
When coronavirus forced the world into global lockdown in March this year, the economy reacted immediately. Stocks fell as people sold their assets for cash and even bonds and gold dipped in the short term as investors awaited news on the type of fiscal stimulus that would be deployed.
The new normal
Following the immediate market reaction to COVID-19, people began to take a more considered approach to stocks. Whilst many industries felt the pressure of the pandemic, there were huge surges for shares in technology companies such as Microsoft and Amazon, both of which went on to benefit from lockdown restrictions as working from home became the ‘new normal’ for many.
Probably because of their safe haven status, it didn’t take long for people to revert back to government bonds and precious metals. Gold, which is often driven by changes in monetary policy, has experienced an incredible rally since the government revealed its programme of financial support to stimulate the economy.
Gold has performed better than stocks and bonds in 2020
Traditionally, gold performs well during times of economic uncertainty and its value tends to rise during periods of low interest rates and inflation. By August this year, global demand for gold had surged to the point whereby its price hit a record high of £1,550 per ounce ($2,030). Currently, it is sitting at around 24% higher than where it was in January 2020. As mentioned yesterday in a Telegraph article, ‘gold has been the best performer of the three asset classes (stocks, bonds and gold) in 2020.’
Long term performance
Gold has long been regarded as an effective store of wealth over the long term. Over the last 20 years, its value has increased by 655%, providing an impressive return for many investors over this period. There are many factors that are currently driving volatility in the gold price. The US election result and further lockdown restrictions for England drove the price up over the weekend, but this was followed by Monday’s news that Pfizer’s COVID-19 vaccine will be 90% effective at preventing the disease. This announcement resulted in a price dip for the precious metal, although many people are anticipating that it will continue to perform well in the longer term.
Andrew Dickey, Divisional Director for Precious Metals at The Royal Mint said:
“The drop in the gold price following the announcement of a coronavirus vaccine has been seen by many as an opportunity to buy. As the US embarks on a new path, and faces up to the economic challenges presented by the pandemic, we may see some additional volatility. But gold’s long term performance, role as a portfolio diversifier, and history as a valued commodity over several thousand years should not be underestimated. This year’s bull run has introduced many new investors to gold, and we’re looking forward to serving them as customers for years to come.”
Speaking to The Telegraph, Janet Mui of Brewin Dolphin (wealth management) also commented:
“As an asset it (gold) has good long-term potential. Putting cash into a bank is becoming less and less attractive because interest rates are so low.”