The US economy and the global economy are both in a bad shape as lockdowns and quarantines cripple output. Did you know:
- Since mid-march, the US economy has shrunk at the fastest rate since 2008.
- Many experts believe the US dollar is set for a sharp decline in near-term.
- The International Monetary Fund (IMF) predicts that contraction in the global economy will happen by 3 percent this year, heading toward the worst downturn since the Great Depression.
In short, things are looking pretty grim on the economy front.
Given the present bleak scenario and uninspiring near-term predictions, what should investors like you do? Which is a safe-haven asset right now?
The answer is gold.
Gold prices have risen in the last few months because of a sharp increase in demand. And the best part is its demand is only likely to grow stronger as the equity markets across the world continue to tumble.
So why have people started to invest in gold more right now? Let’s find out.
- Gold Prices Are Negatively Correlated With Equity Markets
When the markets fall, more money is poured into gold and vice-versa. That’s because gold is considered a safe haven since its supply is relatively constant.
As mentioned above, since the coronavirus outbreak, equity markets worldwide have declined sharply. Because of that, investors are putting more money in gold. The recent surge in demand is aptly reflected in gold prices, which hit a nine-month high on July 8, 2020.
While gold prices have come off their recent high, experts believe that gold will get even stronger in the future. That’s because the current sell-off in the stock markets is just the beginning. The worse is yet to come.
- Gold Can Provide Financial Cover During Current Geopolitical Uncertainty
During an economic crisis and unstable geopolitical times, like the one we’re facing at present, gold retains its value exceedingly well and even appreciates in value. Another thing that works in gold’s favor is that you can use it as a currency if the situation gets really bad.
Now you may be wondering: “But does gold rust? Won’t it lose its purchasing power over time?”
The answer to both questions is in the negative.
Gold is one of the most non-reactive metals. Since it doesn’t react with oxygen, it will not tarnish or rust. Furthermore, the purchasing power of gold remains pretty consistent. For instance, an ounce of gold today can buy roughly the same the amount of goods as it did a few decades back.
- Gold Is An Excellent Hedge Against Inflation
The annual inflation rate for the US shot by half a percent in June 2020 on a year-to-year basis. Because gold is an excellent inflationary hedge, more investors are parking their money in gold. With the short-term forecast for gold being very bullish, this trend is expected to continue.
But why is gold considered such a good hedge against inflation?
The reason is simple: if you own gold, you’re insulated against a failing dollar. As inflation rises and erodes the value of money, the cost of every ounce of gold you own will shoot up.
That brings us to another important question—how can you invest in gold?
You can buy gold in different ways. The three most popular methods are:
- Physical Gold
You can buy physical gold in the form of jewelry, coins, and bullions. Most investors prefer to invest in bullion and coins because they’re not only easily traded, but also universally recognized.
Physical gold is a tangible asset with which you can do as you please. If the situation warrants, you can trade it for money or even use it as currency.
- Gold ETFs
Gold exchange-traded funds (ETFs) are commodity funds. As such, you can trade them like stocks. Their biggest advantage is that you don’t have to worry about storing them or them getting stolen.
To buy and sell gold ETFs, you need a trading account. Also, keep in mind you can redeem them for cash and not in the form of gold itself. Furthermore, every time you trade gold ETF, you’ll have to pay a small commission fee to your broker.
- Gold Certificates
Banks and financial institutions typically issue gold certificates, a paper document that proves your claim on a specific amount or value of gold. Gold certificates are easier to trade than the actual metal, but they’re just as good as the company that issued them. If the issuer closes shop, you run the risk of losing your entire investment.
Conclusion
More people are investing in gold right now on account of current economic downturn and geopolitical instability. With gold expected to only get stronger, right now is a great time to invest in it.
