The price of Gold is now above the $1,800 an ounce mark – it’s the highest level since September 2011. Gold has soared nearly 19% so far in 2020 and it is creeping toward that record high of more than $1,900.
Recall, that the 2008 Lehman Brothers bankruptcy led to an initial dip. However, gold rallied as the market melted down later that year and into early 2009. Moreover, 2011 gold prices hit its all-time high after Standard & Poor’s downgraded the United States’ credit rating, amid market jitters about Europe’s sovereign debt crisis.
The bull market of the metal is against the backdrop of the dwindling state of the global economy, which was caused by the COVID-19 pandemic. However, the rise in gold price earlier this year is quite understandable, since gold often tends to do well in times of financial stress, when fear is prevalent and uncertainty hits the market.
Market uncertainty has made a lot of institutional investors to hedge their funds with some gold assets. The metal is now seen as a safe haven because the coronavirus pandemic has seriously undermined global economic growth, thereby encouraging sustained inflows into gold-backed ETFs.
According to the Chief Precious Metals Analyst at HSBC Securities, James Steel, “A massive investor response to Covid-19 has pushed ETF holdings to record levels, the impact of which has outweighed the decline in jewelry demand and absorbed increases in recycling. Further inflows are expected as investors respond to elevated risks and low yields.”
Furthermore, according to HSBC’s Steel, ‘’The near-unprecedented fiscal and monetary peacetime response to Covid-19 supplies gold with two substantial bullish inputs: liquidity and debt. Low-interest rates, monetary accommodation including balance-sheet expansion, and heavy fiscal spending globally for the foreseeable future will cement and extend gold’s rally.”
Are Investors Using Gold As A Hedge Fund?
Despite a huge rally in big tech stocks and the broader market, investors have continued to flock to gold. The big question is – are some investors hedging their bets? Maybe buying gold could be a good hedge against a potential stock market pullback if the rebound in earnings and the economy doesn’t materialize in 2021 as expected.
However, putting this in perspective will be based on Goldman Sachs’ prediction of the metal possibly reaching a record $2,000 in the next 12 months as bullion prices and holdings are widely expected to extend gains.
For the purpose of investment, do you think the commodities market is bullish enough to hedge your bets?
Leave hear your thoughts in the comment.
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