Investing in gold during this coronavirus impacted the economy can yield huge dividends. Due to the impact of COVID-19, the world is witnessing a recession. According to many economists, the Coronavirus recession will be worse than the recession of 2008. Many governments are opting for the drop in interest rates on different types of investments. Several countries like Japan and a few other countries in Europe have started negative interest rates. This is a sure indicator of a recession.
Gold remained to be a precious metal since times immemorial. It is a rare metal. In the South Indian states, people love to adorn ornaments made of gold.
Why Do Investors Prefer Gold During The Recession
The dip in the interest rates and the chances of printing money is high during the periods of recession. Printing money makes it lose its value and inflation reaches its peak. Hard assets like silver and gold will increase at the time of recession. Investors, thus prefer to remove their money from the banks to beat the interest rate dip and invest in gold. Every potential future scenario looks good for gold investment or investment in hard assets like metals.
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Even though the gold is volatile, the funds received 11.43 per cent returns in February and 46.6 per cent returns in a year. In the year 2018, Central banks purchased a large amount of gold. The central banks bought nearly 651 tonnes of gold. Governments like China, Russia, Poland, etc. resort to buying gold as a defence in recession. If the stocks and bonds do not give high returns, the demand for gold increases.
During the global recession of 2008, the S&P Index crashed to thirty-seven per cent. The cost of gold increased by around twenty-four per cent. The gold went up by thirty per cent while the stocks fell. In a recession during 2001, the S&P Index was -15 per cent, while gold during the same time was at 4.66 per cent.
Advantages Of Investing In Gold During This Recession
- According to the famous investor Ray Dalio, the cost of gold will come close to the total value of money that is in circulation divided by the amount of gold stock.
- Gold is a tangible asset and one can use it as a defence.
- It is a universal wealth. You can convert it into money in any part of the world.
- An increase in demand and price of gold hiked during the stock market crash of 2008. We can notice a similar situation in the 2020 recession. It holds its value even during economic crises.
- Investing in gold along with the other types of recession-resistant investments, will help in diversification of the portfolio.
- Gold does not lose its value completely. Voltaire, a renowned writer, stated that money made of paper will return to its true and original value. Gold will always remain valuable.
- Analysts reported that gold is trading at high prices since the year 2013, April.
- Profound economists suggest having at least five per cent of the investments in gold.
- Gold could stand the Great Depression, oil cost shock of 1974, in the world war, and recession. With the evacuation of the past trends, it can do well in this recession also.
- Gold can preserve wealth during economic crises, market crashes, and catastrophic events.
- The purchase of gold helps to hold the buying power. Due to inflation, the value of money decreases and it loses its buying power.
- Buying and holding gold, and later selling it when the price is high leads to high returns.
How To Invest In Gold?
In a research paper, “The golden dilemma” produced by Claude Ere and Campbell Harvey, in 2012, observed that 83 per cent of the times when the stock returns were negative, the stock returns were positive. This data gives another reason to invest in the yellow metal. The correlation between gold and inflation is high, whereas the correlation between gold and recession is low. Investors must not worry about the price dip of the gold. Gold increased by 2328 per cent when the stock market remained flat.
Keeping a few things can help budding investors to rightly invest in gold. Liquidation of the money from other investments is not ideal to purchase gold. Buying and holding the gold purchased is the best to acquire gains. The investors need to have a large time horizon while investing in gold. Philosophers believe that too much anything is dangerous. The same philosophy works while buying gold as well. Buying excess of gold is not ideal (as diversification is important).
These Are A Few Ways Of Investing In Gold:
Investors can choose from various options of investing in gold. One can choose the suitable way out of these by evaluating the pros and cons.
- People can invest in gold ETFs that mimic the value of actual gold through the stock market change. It can give an indirect exposure to the gold market. It is easy to buy or sell an ETF. ETF is not physical, but a paper. It cannot be used in times of urgent need as a substitute for money.
- Third-party vaulting services are another option to buy gold. These companies store physical gold. It provides security to the asset. Access to gold is not timely.
- Direct purchase of gold in the form of coins or blocks (gold biscuits) or jewellery, gives the guarantee of the weight and purity of the gold. The investors are responsible for securing it.
- A gold futures contract is buying gold while paying just a little amount of money instead of the complete price. A person is benefitted by buying in this method, as he or she has to pay lesser. With this method, the price swings do not affect the investor.
- Another option to invest in gold is through investing in the companies that mine gold. Examples are Barrick Gold, Gold Corp, Newmont Gold, etc. Several online companies sell gold and are reliable like Kitco, gold silver.com, bullionvault.com, etc. The holdings of Standard and Poor’s Depositary Receipt (SPDR) Gold, value increased from 0.6 per cent to 994.19 tonnes.
Follow the rule of Warren Buffett, and turn greedy when everyone is in fear. Recessions and crashes make more millionaires than any other time. Think of this COVI-19 impacted recession as an asset sale. According to the CEO of J.P. Morgan, gold is the only money and anything other than gold is just credit. Plan to invest now in the precious yellow metal! Make the most of the worst and start investing in gold in this recession!