With the current state of the economy and the downward trajectory of several key shares in the past few weeks, several investors are looking to diversify portions of their portfolios in order to better protect their finances. As the market is expected to continue to experience a period of volatility amidst growing concerns of COVID-19, some are turning to gold as a potential safe haven noting that, despite the fall in prices that the precious metal saw early last month, prices have bounced back and the industry continues to perform better than many other sectors. ABC Refinery acknowledges industry trends and evaluates reasons that investors continue to see gold as a key form of investment during uncertain economic shifts.
One of the reasons that gold is appearing as a worthwhile investment in the current climate is due to the adaptions that the economy has taken over the past few months since the crisis began. The federal government cut interest rates to zero and has made plans to purchase billions in government and mortgage bonds to protect the economy amidst the current crisis. These changes have enticed buyers to purchase gold, as low interest-rate environments historically cause for a surge in gold related investments. ABC Refinery also notes that part of gold’s attractiveness as a form of investment during this time is linked to the economy’s impact on other sectors. For example, with mining companies as a major energy consumer, they are likely to benefit from improved operating margins as a result of falling energy costs during the crisis. After a decline in prices in March, gold prices are up and are likely to stabilize more quickly than other assets.
ABC Refinery acknowledges that the amount of government spending occurring to keep industries afloat during this trying time for multiple country’s economy has caused inflation fears that are similarly contributing to a surge in the gold demand. Some investors are growing increasingly worried that government spending will cause the dollar to become debased and are turning to gold due to its ability to retain value as the potential for goods and service cost to rise weighs heavy on investor’s minds. Deflation is also a concern of investors at this time, noting that economic downturns such as the Great Depression of the 1930s pushed prices down as the economy became burdened by debt and business operations slowed. Gold is seen as an attractive option in this hypothetical situation as well, as gold’s purchasing power notably soared while other prices experienced sharp drops during the Depression.