Gold Investments: Should You Weather the COVID Storm in 2020 - 2021?

Gold price forecasters are not worth more than an umbrella in a hurricane. There are ever-changing variables, such that even the most educated people usually miss the mark in forecasting prices. With COVID-19 sweeping the world, many wonder what the price of gold will be since it is considered a safe-haven asset. The following forecast is based on an analysis of historical data as well as current market conditions.

The most influential factor is the growing US budget deficit. The US national debt stands at approximately $24 trillion and is climbing exponentially. A raise in taxes, spending cuts or debasing the US dollar are among the options the government will need to explore in order to service their debt. The Federal Reserve’s asset purchases are at an all time high, having increased by 41% last month. This entails the Federal Reserve having to print an extra $1.7 trillion dollars to buy these assets back and inject money into the system.

Unlike fiat currencies, gold has held its intrinsic value for thousands of years. Historical analysis shows a 13% rise in the gold price during the Great recession as well as a 25.5% increase after the 2007–9 recession. The chart below analyses the S&P’s performance compared to that of gold, again reinforcing a bullish outlook for gold.

How does the current market crisis compare? Feb 20, 2020 — Apr 7 2020: S&P -22%, Gold +2%

Confidence in the financial system vanishes in times of a financial crisis, which historically has been very fruitful for gold as highlighted in the graph below. In all cases, the price of this precious metal initially declined before rising. This pattern can be witnessed during the Latin American debt crisis (1982), the burst of the Japanese stock market bubble (1990), the Asian financial crisis (1997), the burst of the dot-com bubble (2000) and the 2007–9 financial crisis.

With blockchain technology firmly established as a secure accounting method and with Bitcoin’s growing global presence, a new era of gold-backed investing is emerging. A proverbial and literal gold rush is happening, with governments even planning to issue their own gold-backed cryptocurrency. Two major gold-backed tokens have caught the eye of investors, Paxos Gold (PAXG) and Tether Gold (XAUT). Each PAXG and XAUT token is backed by one fine troy ounce (t oz) of a 400 oz London Good Delivery gold bar.

Invictus Capital, a modern asset manager, recently announced the Invictus Gold Plus Fund (IGP), that gives exposure to gold and provides the opportunity to earn a yield on gold.. The long term goal of the fund is to outperform gold as a long-term benchmark.

Gold’s strong historical performance and continued strength continues to provide investors with a solid investment alternative to the traditional staples. Despite short-term price volatility, the uncertainty surrounding the financial implications of the coronavirus continue to solidify gold as a store of value and vehicle for capital preservation.