It is no longer news that the COVID-19 pandemic has adversely affected the global economy.
The disease, which has infected almost 4.5 million people globally, has prompted various governments and central banks to come up with various stimulus packages to mitigate its impact.
Gold, which is widely viewed as a hedge against inflation and reduction in the value of currency, seems to be benefiting from the economic stimulus. In times of economic uncertainty, gold is touted as a safe haven for those who are wary of volatile investments such as stocks, as it seems less risky.
The global gold prices grew by $258.55 per ounce in the last 2 months, hitting $1,744.45 per ounce ($56,085.37/kg) on Friday, May 15, 2020. This represents an increase of 17.40% when compared with the $1,485.90 per ounce ($47,772.79/kg) that it sold on March 16, 2020.
Within the 2-month period, it got to its peak, selling at $1,756.70 per ounce ($56,479.22/kg) on April 14, 2020. This is the highest in over 9 years in the international market.
The rise in gold prices has been supported by talks of further stimulus by the United State government, and the worsening US-China relations, just as the investment demand for gold is rising on the back of recessionary pressures and trade war.
American renowned investor, Warren Buffet referred to gold as a way of going on fear, because when people become more afraid, investors make money but when they become less afraid, they lose money. The coronavirus pandemic, which has turned a global health crisis into an economic one, has raised the fear level of investors extremely high.
According to Paul Jackson, Global head of Asset Allocation at Investment group, Invesco, gold over a long period of time tends to hold its value in real terms.
While referring to Warren Buffet’s statement, Jackson pointed out that people’s main reason for investing in gold was for the protection of their investments, as it did not pay a dividend or interest.