COMMENTARY – Investor demand for gold seen robust driven by coronavirus-fuelled economic uncertainty

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By David Brough

April 5, 2020 – Buying pressure on gold appears likely to stay strong in the next few months due to the appeal of bullion as a safe haven amid uncertainty over the extent of damage that coronavirus will heap on the global economy.

But upside in gold prices can be capped by investors’ urgent need for cash if financial assets slide further.

In March, gold appeared to briefly lose its safe haven status due to a startling flight to cash in the face of tumbling financial markets.

 

COMMENTARY – Investor demand for gold seen robust driven by coronavirus-fuelled economic uncertainty

 

On April 3 bullion prices firmed after poor U.S. nonfarm payrolls data reflected the economic misery dealt out by the coronavirus pandemic, with U.S. gold futures up 0.5 percent to $1,645.70 per ounce.

The risk of further falls in share markets in the weeks ahead, due to the havoc that coronavirus will inflict on economies around the world, could strengthen the argument for raising gold holdings in portfolios.

Gold has been more resilient than shares in the face of the emergency, and briefly touched the highest level in more than seven years at $1,702.98 per ounce on March 9.

Wall Street, on the other hand, had its worst month since 2008, with the S&P 500 falling 12.5 percent in March as coronavirus hammered the world economy. Coronavirus resulted in the FTSE 100 marking its worst quarter since 1987.

President Donald Trump’s assertion that he hopes to get America back to work again by Easter may be optimistic in view of the current rate of increase of coronavirus cases in the world’s biggest economy.

“If you want to protect your wealth, such as it may be, own some gold,” wrote Lawrie Williams, gold market commentator with bullion dealer Sharps Pixley.

“In the past many investment advisers had recommended holding around 10% of one’s investments in gold.  In the current situation, with the likelihood of a further decline in equity valuations, it might be worth upping this gold proportion of your investments.”

Jewellers who hold gold inventory are more protected against downside risks for their businesses during the crisis, as they can exchange the precious metal for cash.

They can also raise margins by scrapping customers’ gold – if they can resolve logistical challenges during the lockdown.

For UK jewellers, a weak pound will boost their returns on cashing in dollar-denominated gold.

Disclaimer: Any opinions expressed in this article are solely those of the author and should not be seen as investment advice.