Do You Know How To Invest In Gold?
While it’s no secret that gold has historically been considered a “safe-haven,” it’s been an unusual week given the circumstances of the market. The simple adage is “if stocks are down, gold is up”. But for investors this week, that hasn’t been the case. From the broad view, gold is down with the market. Even though it’s considered a safe haven, the circumstances could be pointing to a different type of risk. This risk is something that not many of us have ever seen before.
The fear card is being played hard right now. But it doesn’t come without warrant. As this coronavirus has rapidly spread across the globe, entire countries are going into lock-down to stop its spread. Herein lies the issue. When it comes to mining gold, there are warm bodies, boots on the ground, that do the heavy lifting.
With warm bodies, obviously come potential health issues. As far as the coronavirus impacting most continents, it poses a very real risk of a shut down to operations or at the very least, a declining workforce.
Does The Coronavirus Really Pose A Threat The Gold?
In the long run, the lasting impact of the coronavirus on gold could be minimal depending on what happens next. So far companies like Barrick (GOLD) and Newmont (NEM) have directly stated that they are prepared. For other companies, it hasn’t been clear. But theoretically, it could impede gold production. It’s this factor, however, that could become a boon to gold in the end. While speculation has focused on slowing economies and devaluation of currencies during an extreme scenario, the likelihood that gold becomes attractive to investors could be higher.
Just as gold rises during times of market uncertainty so too has it during times of economic strain. Some speculate that the scenario could be similar to that of the 2008 crash. This was when currency inflows devalued currencies in exchange for an attempt at economic stimulus. It’s a similar situation with dilution in stocks. More supply devalues the current shareholders because there is disproportionate demand. From 2008 to 2011, gold ended up running from below $800 to all-time highs of over $1,900 an ounce.
In such a situation, the short-term sell-off in gold we’ve just seen could simply be a reset as investors free up cash in holding that are still generally “up”. Once the coronavirus situation calms a bit and level heads prevail, it’s likely investors will begin paying attention to economic fundamentals once again. Will this be the signal that gold bulls are ready to take back control?
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