For many years, gold has always had the reputation of being the safe haven par excellence. During a period of economic and financial crisis, it made many investors happy. But today, with the unprecedented impact of the Coronavirus pandemic, which is still raging in 2021 in alarming proportions, it is necessary to question the reliability of gold. Does it still retain its reputation as a safe haven? I offer you a close-up in this article!
Many factors have favored this stability for gold in 2020.
Precious metals in general have experienced a strong bullish trend during the year 2020 despite the global pandemic and its consequences. More specifically, it is gold that has distinguished itself by honoring its reputation as the safe haven par excellence . This upward momentum for the precious yellow metal was favored by the fall of the financial system, linked to Covid-19 and the scarcity of gold. These two factors combined have indeed made it possible to raise its price. The purchase of gold, which La Maison Française de l’Or in Annecy offers for example, has thus enabled many investors to stay in the green in 2020.
If we look at the fall of the stock market on March 16 and 17, 2020 and the fall in gold, we can think that many elements were brought together to call into question the reliability of gold in times of crisis. But very quickly, the precious yellow metal confirmed all the good people thought of it by producing the opposite effect. Paper gold (ETF) has served to protect the margins of many investors . In fact, while it’s true that gold went down, it had just had a massive multi-month bull run.
Yet this drop did not affect the entire gain. As a result, ETF sellers benefited from considerable capital gains and were thus able to meet their margin calls, despite the losses recorded in the equity market. After this stage, the price of gold improved significantly, leaving on obviously more solid bases . Apart from this factor, I consider that there are others that have allowed gold to stay true to its reputation.
The Trump administration’s economic policy at the time, particularly with regard to the USA VS China trade war, also favored the rise in the price of gold in 2020 . To this, we must also add the refusal to confine the former American president, which allowed the stock market to gradually recover after its fall in mid-March. Normally, gold should have suffered from this stock market stability. But that was without taking into account the fact that interest rates had remained low, thus valuing gold . The latter having no internal return, it benefited from capital gains on its absolute value.
Considering the factors that favored the bullish trend of gold in 2020, analysts and specialists from major financial and banking institutions agree that gold should (still) have a flourishing year 2021 . The most optimistic even consider that gold will reach the bar of 2400 dollars an ounce. Positions justified by numerous underlyings.
Investors in precious metals know that the value of gold is generally linked to that of the currency in which its price is expressed. As often, the United States and its economic policy have an influence on the price of gold. Indeed, the economic recovery plan implemented by the Biden administration raises fears of a fall in the dollar . As a result, gold, whose reference currency is the US dollar, will rise.
Interest rates that are still low, even negative, call into question the reliability of long-term investments deemed to be risk-free, such as bond investments or life insurance. Under these conditions, the returns that investors can expect from these investments are almost nil. Inclusively, gold, despite its lack of internal return (no dividends or interest), capitalizes on its nominal value (which can increase) to make a place for itself . This is why some life insurance managers have integrated gold to diversify their units of account.
In the strategic sectors of the world economy, stammerings are still to be feared. These include the aeronautics, catering, tourism and corporate real estate sectors, which are not ready to fully recover from this crisis, or at least not in 2021. However, their importance for the world economy is considerable. However, it is known to investors that when the latter is weakened, it is towards gold that one must turn .