October 31, 2020

Gold makes its fortune amid the pandemic




If there is a metal that shines with its own light in these weeks of uncertainty due to the pandemic, it is gold. This Thursday its value stood at $ 1,907.82 per ounce and it has been around $ 1,900 for the entire month of September and October after peaking on August 5 at $ 2,063 an ounce. Quite an escalation, since on May 1 it was barely worth $ 1,685. As IEB (Institute of Stock Market Studies) professor Javier Niederleytner points out, “gold is a scarce good and, logically, it works by supply and demand, precisely that scarcity makes it rise.” To which he adds an essential factor: «We are living in an environment of beastly uncertainty and that makes people seek refuge. Establishments dedicated to investment in physical gold such as Degussa recognize strong increases in demand that in March – during the start of the first wave of Covid – skyrocketed up to 200% and that now it could be between 20% and 30%. Also in relation to the buyback.

In his opinion, it also influences that other options such as bonds or stocks are not giving the expected returns, either due to the policy of low almost zero interest rates from the ECB or volatility surrounding financial markets, very sensitive to the evolution of the pandemic. Along these lines, Niederleytner does not rule out that “gold may be above $ 2,000, although everything is conditional on whether the vaccine is delayed or a couple of bad news comes out.”

“Strategic” and “volatile” asset?

So is gold a good refuge for these tough times? The World Gold Council highlighted in one of its latest reports the “strategic” nature of gold and its ability to generate long-term returns, in addition to allowing losses to diverge in times like today. In this sense, this body believes that introducing this raw material improves the “quality” of the portfolios. However, Niederleytner has warned that “Gold has behaved like a volatile asset” and he points out that the day the vaccine is proven to be effective and has good acceptance among the population “gold is going to get a good smack, it won’t rise for life.

For his part, the director of Deguss in Spain Tomás Epeldegui, has argued that “in such scenarios the gold clearly helps maintain purchasing power like real estate, for example “although he has recognized that it is” sensitive to joints “so as Niederleytner has positioned it as a long-term investment. The IEB professor has advised the portfolio diversification and pointed out the possibility of incorporating it in a percentage of between 10% and 15%. For Epeldegui there is “assuming the different legs in their investments” and warns that “investing is not the same as speculating.”

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