While gold has been a safe investment for many years, people are wondering what is happening to it in 2020. World’s been hit with a global pandemic, and there’s an almost certain economic crisis looming over us. So, how is gold holding up in such an uncertain time?
If you’re looking to invest in gold, you’re probably wondering the same.
There are many reasons to invest in gold, first and foremost being that gold is known to thrive during economic turmoil. Throughout history, gold was deemed as a means to preserve wealth. Even in recent history, gold has survived a lot.
During the Great Depression of the 1930s, people hoarded gold as other currencies lost their value. Gold gained value, and its price escalated quickly. Whoever possessed gold at the time, was considered lucky.
A similar thing happened in 2008 when the Great Recession took place. Gold did not only survive, it actually thrived amid economic calamity.
So, what is happening to gold in 2020? Is it still considered a safe investment or should you skip it? Let’s get into it.
The gold market in 2020
Once again, investors have embraced gold as a key portfolio hedging strategy. This has become a sort of tradition during economic turmoils. Whenever a financial crisis hit the world, gold was held as a hedge against inflation and deflation, and it’s happening again.
The ongoing Covid-19 pandemic will have a lasting effect on asset allocation, and it will certainly reinforce gold as a strategic asset.
In the first half of 2020, gold increased by 16.8% in US dollar terms, thus significantly outperforming other major asset classes, as we can see in this chart.
By the end of June 2020, gold has reached $1,770 per ounce, a price not seen since 2012.
As a consequence of the pandemic, global interest rates are declining. Since gold yields no interest, its prices soar during times like these. On top of that, central banks are buying gold in bulk, further triggering its prices.
Many investors see gold as a safe haven and they believe that this is a good time to invest in it. Gold has already reached a new high, with a price of $1,945 in August, and it is expected to keep rising. Gold is not about to stop shining any time soon. And not just gold, but other precious metals, palladium in particular.
What are the risks of investing in gold right now?
While investing in gold usually carries little risk, there still are some, and you should be aware of it. As mentioned before, central banks are hoarding gold, and if they decide to suddenly sell huge amounts of gold in an attempt to tide over a financial slump, gold prices could stall.
Experts believe that the economy will start to recover by the end of 2021, and until then, gold is considered a safe investment. When the economy recuperates, investors will start to allocate their funds to assets like stock, bonds, and real estate, redirecting their investment from gold. This could also cause gold prices to stall a bit (not necessarily, of course).
How smart is it to invest in gold now?
Gold has quickly become one of the best-performing assets this year. Gold prices are skyrocketing, and even the high-flying NASDAQ didn’t manage to surpass gold on a year-to-date basis.
It’s important to remember that you cannot look at the gold market as you look at the stock market, since they operate in different ways. Unlike stocks, gold is a store of wealth. From February to March this year, gold saw a drawdown of 14.8%, while stocks plunged by 35%. However, quickly afterward, buying opportunities emerged and gold has once again proven to be of true value as a portfolio diversifier.
In years that follow, gold is expected to thrive. Some experts have foreseen that by January 2021, an ounce of gold will be worth $2,250. In 2023, gold is likely to rise to $3,200, and by the year 2026, experts believe we can anticipate an ounce of gold to rise to $5,600. It should be noted that these prices are just the mid-points and not the highs for each year. While gold prices may vary on a daily basis, we can expect steady growth in the long term.
For this reason, gold is thought to be a safe bet in 2020.
On the other hand, if the upcoming economic crisis (and political fallout that could accompany it) happen, we could expect a steady rise in inflation or even hyperinflation in the years ahead. If the dollar loses its value and people lose faith in governments, central banks, and fiat money, we would measure the value of gold not in dollars, but rather on other scarce assets and commodities.
In any case, many believe that gold and gold miners are currently undervalued and that gold prices will continue to rise in the next few years.
How to buy gold
As an individual, the best and safest way for you to invest in gold is through bullion. Bullion is precious metals in the form of coins, bars, or rounds.
Gold bullion is always in demand, and some of the most popular choices include coins from the US mint, Royal Canadian mint, South African mint, Perth mint, British Royal mint, and many others.
US mint produces two exceptional gold coins, the American Gold Eagle and the American Gold Buffalo. The Gold Eagle is 22kt coin, while the Gold Buffalo is a 24kt coin, meaning it’s pure gold with a fineness of 9999 (it’s 99.99% gold).
Canadian Gold Maple Leaf is the most popular coin worldwide. It has a purity of 99.99%, and some editions even have a 99.999% gold content. Royal Canadian Mint is at the forefront of anti-counterfeiting technology.
The Krugerrand is another very famous coin. For a long time, it was the most popular coin, until Gold Maple Leaf took its place. However, Gold Maple Leaf is yet to surpass the population of South Africa’s Krugerrand.
If you wish to get a larger amount of gold, go with gold bullion bars. You can find gold bars in various sizes, from 1g to a few kilos.
One important thing to know when buying gold is the terminology, in particular the premium and spread. Premium is the price above the spot price of gold that you pay, and it involves three players – the manufacturer, the distributor, and the retailer.
The spread is the difference between the buy and sell price, and each dealer sets its own spread. Always make sure that the gold you want to buy has a narrow spread. The rule is to minimize the premium and minimize the spread.
As for the purchasing options, you can do it online or in-person, depending on what you prefer. If you do it in person, you can have your gold tested for authenticity in front of you, and if you do it online, your precious metal will arrive safe and secure to your doorstep.
How to store gold
Alright, you’ve bought some gold bullion, and what is the next step? Where should you store it?
Generally, it’s not recommended to store gold in your home, unless maybe you have an ultra-secure safe. In case you don’t, you really shouldn’t keep it where you live. Having gold lying around your house could compromise your safety and you’ll live in fear it will be stolen.
The good news is that trusted dealers have the option to store your gold for you.
When you opt for a secure vault, you are guaranteed the utmost level of safety that follows industry standards, like double insurance protection, independent double-auditing, and 100% confidentiality.
If you’re contemplating investing in gold, now is a good time as any to do it. Maybe even a great time. With the current global pandemic and the inevitable economic crisis, gold is considered a safe haven and a preserver of wealth. Besides, if central banks are hoarding it, why should you get a piece?
The best way to do it is by getting gold bullion. Whether you opt for coins, bars, or rounds, be careful to choose a trustworthy dealer. Don’t just go buying gold willy-nilly from suspicious dealers – you could end up losing a lot of money.
So, to answer the question, “Is gold a good investment in 2020?”
Yes, it is.
Now that you’re familiar with the current gold situation and your buying options, you can invest your money wisely.