The coronavirus pandemic has caused an unusual situation throughout the world, with citizens confined to their homes and the paralysis of practically all economic activity, except for essential services. The International Monetary Fund predicts the arrival of an economic recession that will be the most serious since the Great Depression of 1929. It is in these circumstances of crisis that gold gives its best and asserts its character as a refuge asset.
The situation the world is going through has no precedents in history. Previous pandemics, such as the flu at the beginning of the 20th century, had a lethal impact, but they did not occur in a world as globalized as the current one, in which the movement of citizens from one point to another on the planet is a matter of a few hours.
Current Situation
The fact that economic activity has come to an almost complete halt, due to force majeure, is going to cause an unprecedented crisis. A recent report from the International Monetary Fund , published this same month of April, ensures that the coming crisis will be worse than the one suffered from 2008 and the most serious that will affect the world since the Great Depression of 1929 .
In such a context, what can be expected from investment gold? The precious metal is one of the assets considered as a refuge of last resort, to which investors turn in times of market crisis. There have been few moments in recent years with a crisis as acute as the current one: the stock markets of the main countries dropped up to a third of their value in the span of just a few days last March. The outlook for the economy points to a global recession of more than 3% .
It is not surprising that the demand for gold has skyrocketed in recent weeks, exacerbated by a shortage of the metal in the main markets (Europe and the United States), due to the temporary closure of some of the world’s main refineries and mints. .
Gold As A Safe Haven
And it is that gold is still considered the best asset to have at times like the present. According to the report ‘The importance of gold as a strategic asset’ , published by the World Gold Council in 2019, the precious metal is a very scarce asset with enormous liquidity, which is bought both as a luxury good and as an investment.
The report highlights the four fundamental roles that gold can play in an investment portfolio: source of long-term return ; element of diversification of the investment portfolio , reducing losses in times of crisis; highly liquid asset with no credit risk , outperforming fiat currencies; and a half to improve the results of the investment portfolio.
The best proof of this safe-haven nature is its current appreciation : after a few days of increased volatility, in which the price of gold fell, replicating the movement of the markets (a phenomenon also observed by analysts at the beginning of the crisis of 2008), the metal has skyrocketed to its highest levels in the last seven and a half years.
A few simple facts are enough to prove it: gold started the year at a price of $1,527.10 an ounce (fixing price from the London Bullion Market Association ). On April 14 it closed at $1,741.90 an ounce , after earning more than $60 in a single session, which means that the precious metal has appreciated no less than 14.07% so far this year , in doors of one of the most serious economic crises in history.
The experience accumulated over many years, moreover, reveals that, since 1971 (when the convertibility of the dollar into gold was repealed, ending the provisions of the Bretton Woods Agreements , after the Second World War), the price of gold has been revalued at an annual average rate of 10% .