At periods of global instability, gold, recognized as the safe-haven currency, historically is more precious. Central banks and international monetary organizations retain around 20 percent of the above-ground balance of gold reserves. Moreover, cash and the U.S. Dollar usually has an inverse relationship because of dollar-denominated foreign gold. Currency depreciation drives up the value of gold and vice versa but that was not the case in 2019 when we witnessed simultaneous gains in the value of gold and the U.S. currency. Some investors look into other options such as eToro gold trading online which allows them to speculate on the price movement of this precious metal.
So far this year, the COVID-19 pandemic has been causing investors to go mad for money.
Investors picked up a record-breaking 23 billion dollars in exchange-traded funds carrying the gold and silver bars in the first quarter, according to a new World Gold Council survey. These portfolios include the grand-paper of the SPDR Gold Shares (GLD) in all bullion ETFs.
Record-breaking Inflow of Cash to Gold ETFs
To put it another way, the study notes that no other quarter has seen as much cash flow into bullion ETFs.
Over the three months through March 31, the funds were used to attach 298 metric tons of metal to gold ETF reserves globally.
Rising appetite for the yellow metal has driven higher gold rates, bucking the pattern of the broader stock markets that have tanked in the past few weeks. According to Yahoo reports, the SPDR Gold Shares are up 8.6 percent in the year, while the S&P 500 index is down 17.7 percent in the same span. (Source)
Yet this increase in bullion values may be just the start.
“I think gold should go higher,” says Axel Merk, founder of Merk Investments, the firm that manages another bullion fund, the VanEck Merk Gold Trust (OUNZ) ETF. “Historically, people tend to get gold in times of trouble,” Merk states that having solid gold coins is becoming tougher now as the plague has closed down the mints that produce them. That sent the rates for these coins much faster than the quoted market values you see on trading screens as small investors are pressured to pay so-called “premiums” or additional costs.
Holding gold is typically a good diversifier for the portfolio, especially in times of crisis. Metal values continue to rise while other assets appear to decrease in value. That’s basically what happened this year so far with stocks down and higher commodity costs.
Inflation Fears Are Boosting Demand
Merk also claims creditors are already concerned that federal expenditures would debase the currency. This helps fuel demand for gold as gold has become a strong shield against the wealth-widening impact of increasing products and services prices over long stretches.
“There has been an enormous level of economic spending, in comparison to human misery,” he notes. “There’s feeling inflation has to be part of that.” Gold prices have reached a record high above $1,900 per ounce, and have recently traded around $1,650.
No doubt, as conditions worsen, the cost of everything will hit an economic low while gold prices will skyrocket. Until this pandemic ends, there is no chance of gold prices to stabilize.