- Gold rally has been under the spotlight in the face of COVID-19 crisis, generating ~23% return on a YTD basis.
- Gold, also referred to as the ‘yellow metal’, has time and again proven itself as a safe-haven asset.
- Yellow metal has been under some pressure since August 2020 amid relative strength in the USD.
- Trajectory of US Dollar, global economic revival, vaccine developments and US elections are likely to drive gold prices in the remainder of the year.
Gold, also referred to as the ‘yellow metal’, has time and again proven itself as a safe-haven asset. There are records in the history of mankind that denote gold as the most sought-after commodity because of its anti-tarnish image and its ‘not so easily’ available nature.
Gold rally has been under the spotlight in the face of COVID-19 crisis. The virus-induced economic uncertainty, volatile markets, distressed asset return and overall greenback pullback resulted in high demand for the precious metal. Gold has recorded ~23% return on a YTD basis.
While there has been some pressure on the gold prices since August 2020 amid relative strength in USD, price action deserves closer scrutiny in the near term.
Why gold is unique?
With a stockpile of features such as desirability, merit, prosperity, power and durability, gold has a luxurious metal property that is prevalent across geographies, climate and time.
History has it that almost all the commodities have been used as currencies but over the period, their value deteriorated. But gold stayed strong. All metals loose luster and value but gold never goes. Almost impossible to destruct, this heavy-duty metal, once mined, always stays in one form or the other.
Lucrative Prospects of Investment in Gold
Termed as a great investment portfolio diversifier, gold very well absorbs stock market shocks. When the market is doing well, precious metals like silver, platinum and gold do well.
But when the market turns bearish, all metals except gold are bound to go down as the demand for the ‘yellow metal’ does not get affected because of its limited industrial usage. Gold, as a safe haven asset, witnesses increased demand amidst market and economic volatility as a significant hedging tool. Gold also protects the portfolio against the risk of inflation.
Besides buying physical gold (coins and bars), one can buy desired stocks in gold mining companies, gold futures contracts and gold ETFs.
Amidst COVID-induced market uncertainty and economic damage, investors increasingly looked at ETFs in a ‘FOMO’ investment environment in a bid to not lose out attractive opportunities, to diversify from regular equities, and to rebalance portfolios and hedge positions.
Lens Through Gold price historical trend
Turning the pages of ‘golden’ history, we find an incredible bullish behaviour of yellow metal. The gold prices, unlike the prices of any other commodity, shot up exorbitantly during early 2000s.
Interestingly at the onset of global financial crisis in 2008, gold witnessed a dip of ~30%. Only to be followed by remarkable rally till 2012 given the global economic and financial damages, volatile markets and ultra-low US interest rates.
Subsequently, gold price moved in a tight range during 2013-2019, despite 2018-2019 trade war between two global superpowers.
2020 has been particularly exciting for bullion traders, gold players and ETFs enthusiasts amid economic volatility, money printing initiatives by global monetary authorities to combat virus and substantial fiscal policy initiatives.
Gold in a Sweet Spot in the Face of COVID-19 crisis
The coronavirus contagion was announced in December 2019 in China. It was officially named COVID-19 by WHO in February 2020 and in March 2020, was declared a pandemic. Immediate measures like quarantines, ban on travelling and lockdowns ultimately led to still, stagnant and dull economies.
Amid the initial massive selling witnessed in equity space, quantitative easing and low interest rates, the gold momentum has been remarkable. Though, accompanied by brief periods of dips on lockdown relaxation and economic recovery hopes.
While the yellow metal was seen under some pressure in March, it went on to gain momentum and reach peak in August, surpassing the level last seen in 2012.
Gold stocks to watch out
There are over 400 ASX stocks with exposure to gold projects in Australia. The ones to look out for in the upcoming times are: Pantoro Limited (ASX: PNR), Evolution Mining (ASX: EVN), Northern Star Resources (ASX: NST), OceanaGold (ASX: OGC), Newcrest Mining Ltd (ASX: NCM), Silver Lake Resources Ltd (ASX: SLR), WestGold Resources (ASX: WGX) Saracen Mineral Holdings Limited (ASX: SAR), St Barbara Limited (ASX: SBM) and Resolute Mining Limited (ASX: RSG).
Is there any Steam left in gold?
The overall market sentiment helped take the gold prices higher during the first half of 2020. While white bar and coin investment declined in late first half of 2020 driven by Asian weakness, there were record investments into gold-backed ETFs.
The correlation between miners and the price of gold is quite high over the long term. But just be mindful that it's not unusual to see the two diverge in shorter time frames.
Trajectory of US Dollar, global economic revival, vaccine developments and US elections are likely to drive gold prices in the remainder of the year.
There is no investor left unperturbed with the ongoing trade conflicts between US-China and the devastating bushfire in Australia.
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