Why Gold is the smartest investment you'll make in 2020

Gold is a valuable commodity which holds well during turbulent times. This is predominantly due to the fact or at the very least the perception, that the majority of investors are risk averse. It feeds off economic uncertainty and with COVID-19 cases on the rise, the US-China tension, higher inflation, and lower interest rates, it would be fair to call the current climate a “Sunday potluck”.

Last Tuesday, Gold prices jumped for the first time since 2011, rallying over $1,800 USD and at the time of writing is $1,809.7 USD. The thought of a freeze in the economic recovery plagues the minds of investors and pushes them towards a safe haven - where gold is in bullish territory.

 

 

What's on the BPC radar?

The COVID-19 Pandemic:

As it often happens, Donald Trump’s claims of the US “winning the pandemic war” seems to be very conflicting with some of the most recent statistics. For instance, Florida alone has recorded more cases of coronavirus than most countries around the world. Reports from Saturday confirmed 15,300 cases in one day according to Johns Hopkins University. It is clear that the pandemic is still not over here in Australia either, as Victoria goes into lock down and NSW goes on high alert. The possibility of a slower economic recovery is growing by the day and the price of gold is following this trend proportionately.

Rising inflation

People often use gold as a hedge against inflation. With the decline in consumerism and minimised globalisation as a result of COVID-19, it begins to prove costly for businesses and it would be a fair assumption that this cost will be transferred to the consumer. To mitigate this, the central banks have been flooding the market with stimulus, but as stated in my previous article, gold and interest rates correlate negatively.

US-China Tensions

The US-China trade deal has become fragile with COVID-19 and China has recently reduced its poultry and agriculture from the US. Early this month, Donald Trump stated that the relationship between US and China had been “severely damaged” by the pandemic. Investors do not like the US taking on the second biggest economy in the world, especially amongst the worldwide pandemic. If the relationship does not get back on track or further deteriorates, we can expect to see a surge in the gold spot price.

 

WarrenBuffetGoldBarclayPearce

" Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble. "

Warren Buffett

 

 

Because economic turbulence seems likely, all signs point north for gold. In the short term, there will be sellers as investors look to obtain value to cover their margins, but there are plenty of hunters looking value.

Another way to gain exposure to this value is through physical gold, see below some of the ASX companies reaping the benefits over the few months:

Resources and Energy Group (ASX:REZ): + 100%
Newcrest Mining (ASX:NCM): + 29.81%
Evolution Mining (ASX:EVN): + 34.75%
Bellevue Gold (ASX:BVN): +114.29%

 

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