For thousands of years, gold has been perceived as a special and valuable commodity. This beautiful, scarce, and finite precious metal was commonly used throughout the world as a global currency, and it was a quintessential symbol of wealth and power. While it is usually overshadowed by forms of wealth that yield higher returns, this year, gold is the best-performing traditional asset – largely because of the COVID-19 pandemic gold rush.
The global economic downturn resulting from the coronavirus pandemic is making gold an attractive investment asset to preserve your money’s value in times of uncertainty. Continued market volatility and uncertain economic recovery are poised to make gold prices hit record highs in the near future. Here are five reasons why gold is the best investment you can make today:
Safe Haven
Gold has always been the world’s favorite monetary safe haven because it tends to preserve its value through all sorts of economic trends. This low-risk, stable asset is the safest investment you can make in times of crisis or uncertainty. Gold’s unparalleled ability in retaining its value and purchasing power in troubling financial times makes it the perfect investment to hedge against market weakness and volatility.
As uncertainty about post-coronavirus economic recovery permeates across the world, nervous investors will keep pulling their money out of stock markets and other currency-backed assets and investing their cash in gold to preserve the value of their wealth. The global coronavirus-related economic turmoil will increase demand for gold assets, leading to further price surges in the future.
Average Inflation Targeting
The United States Federal Reserve is implementing monetary policy measures to boost the country’s inflation rate to an optimal level. After years of persistent, below-target inflation rates, the Federal Reserve will intervene to achieve an average inflation rate of 2% over time to stimulate economic growth and tackle unemployment.
The impending increase of the country’s inflation rate will create an ideal environment for gold assets to perform. The Federal Reserve’s accommodative monetary policy to boost the country’s inflation will lead to a surge in gold prices. To hedge against this foreseeable inflation, investors are more likely to flock to gold assets to preserve their money’s value.
Gold as an Inflationary Hedge
Throughout history, gold has been regarded as the perfect hedge against inflation. During periods of high inflation, currency-backed assets will rise in price, but lose their real value. Gold is better able to retain its value under inflationary pressures. As a result, savvy investors will sell off their currency-backed assets and add more gold to their investment portfolio to preserve their wealth.
Record-Low Interest Rates
As America’s price growth fails to meet the Federal Reserve’s target inflation rate, interest rates will be maintained at record low levels to revive economic growth. With the country in a severe recession due to the coronavirus pandemic, interest rates will remain at 0% for the foreseeable future to make lending money to consumers and businesses cheaper in order to aid economic recovery.
The Federal Reserve’s supportive monetary policies will help buoy gold prices. Interest rates hovering around 0% will give people less incentive to hold onto dollars or to invest in debt and bonds because the returns are too low to make any tangible profit. Gold assets will become a more attractive option for investors as they will yield higher returns in times of record-low interest rates.
Fiscal Stimulus
A global recession and record-high unemployment rates will compel many governments around the world to pass more stimulus packages in order to keep their economy on its feet. Depressed economies around the world will need years of government assistance to fully recover from the devastation caused by the COVID-19 pandemic.
In the US, an extension of stimulus measures will pour trillions of dollars into the economy, triggering fears of inflation, a weakened US dollar, and increased government debt. Fears of future economic uncertainty and a devaluation of the US dollar will drive many people to invest in gold, creating a bull market for the precious metal.
Gold vs. Dollar
The price of gold has an inverse relationship with the value of the US dollar. When the value of the US dollar increases, the prices of gold decreases, and vice versa. As the US government continues to pile up debt and inject trillions of dollars into the crippled economy to revive growth, the dollar is likely to lose value due to inflation. Investors will rush to buy gold to protect the value of their wealth, increasing the likelihood of gold prices reaching record highs in the near future.
Supply Reduction
Gold is a finite and rare precious metal. These characteristics have made gold a popular asset to hold for preserving and passing on wealth throughout generations. The limited natural resource is becoming even more scarce, as rare new discoveries and production constraints reduce the supply of gold to the market.
In 2019, new gold production from mines totaled 3,531 tons, down 1% from 2018. Many experts believe we have already reached peak gold, meaning we have mined the most gold we could ever have in one year. The COVID-19 pandemic has also shut down many gold mines around the world, resulting in greater supply reductions in the future.
Rare new gold discoveries, production constraints, and increasing demand from investors and developing nations will exert greater upward pressure on gold prices, further increasing the value of the rare, precious metal.
Buy Some Gold Now
Gold is a valuable global currency, used for centuries to preserve wealth and pass it on to next generations. Widespread fear of future global economic uncertainty will make gold a more popular asset to hold to mitigate the risk of wealth devaluation. Gold is the best investment you can make in today’s economic climate. Now is a great time to add some gold to your investment portfolio to protect your savings and future.