By April Smith
October 26th, 2020
BURLINGTON, ON
The impact the coronavirus has had on global markets has been significant and sudden. Global and local economies are on the long road to recovery.
The stock market, for instance, experienced a dramatic crash in February which lasted until April. Investors’ immediate reaction to the pandemic was to sell their assets out of fear they would lose value. This of course resulted in prices plummeting. Amidst global panic, investors flocked to what’s long been considered a safe haven: gold.
Why gold is attractive
Gold is regarded as a safe haven because of its inherent value.
Among all the precious metals, gold remains the most traded with the biggest market. It is regarded as a safe haven because of its inherent value that comes with it being a shiny, durable, and rare commodity. Throughout history gold has been used as a standard of value and even used as a medium of exchange. Although countries no longer negotiate using gold, the metal is still highly coveted around the world.
For those reasons, gold is an attractive asset to own in times of economic uncertainty. The value of gold tends to rally in the midst of financial turmoil which is illustrated by its record-setting prices in recent months. Uncertainty from the coronavirus is, of course, the main reason for the surge in gold prices. Other factors that influence the price of gold are supply and demand, economic and geopolitical stability, and investor sentiment. But compared to other securities that perform when a nation is at its best, gold typically has an inverse relationship with stability.
The basics of investing in gold
There’s more than one way of investing in gold but the most direct is to own it. In fact, Canada has experienced a surge in gold jewelry sales not so long ago because of the positive sentiment towards the metal amidst financial hardship. The prices are more competitive and older people who still owned jewelry were able to take advantage of this by trading it. You can also consider purchasing bullion or gold coins to diversify your investment portfolio.
However, owning physical gold is challenging because you will have to authenticate it and find a way to store it securely. That’s why people turn to gold receipts, which are backed by actual gold and can be redeemed later on, or other assets backed by gold such as derivatives. These are investment instruments that allow investors to speculate, invest and trade in the market without owning the underlying asset. The other option is to own shares of assets backed by gold such as with an exchange traded fund or ETF. With gold ETF, you own assets or derivatives that are backed by the metal. Gold mining shares and gold futures are examples of what can be in a gold ETF which can give you the opportunity to profit from the performance of gold without owning it.
When to invest in gold
Experts state that there is no right time to buy gold — every investor should have some in their portfolio. It’s best, though, to buy gold when it’s still inexpensive. Gold prices have been declining recently as the US, which has the most active gold market, rebounds. Now might be a good time to purchase gold or gold-backed assets and store it for the long-term while it rides out many highs and lows.
