People are lining up to buy gold. With the Corona pandemic, the world is currently experiencing a crisis the like of which has never been seen before. Terms like inflation or even hyperinflation are making the rounds. Efforts are underway around the globe to contain the unknown virus. This time it is not just a matter of winning or losing, it is a matter of substance, of pure survival. The world economy is slowing down, almost everything is at a standstill. The governments of the world have pulled the plug. Mother Earth has been broadcasting a state of emergency for two weeks.
Actually exactly the right time to invest in physical precious metals like gold – right?
Corona determines everyday life in hospitals, and also stock markets
All over the world, the signs are pointing to recession. Thanks to Corona. The Dax (the most important German share index) is falling into a bottomless pit. The same goes for its counterparts, the most important indices in the world (Wall Street, Dow Jones, Nikkei and Co.). We are talking about a time when investors and investors are thinking about equipping their investment portfolios with physical precious metals in order to be better prepared for currency conversions, inflation, social upheavals and crises. What is needed now is the subjective sense of fear of each individual, not hysteria, not panic mongering.
What was true before the Corona crisis is no less true in the crisis. Anyone who exchanges his assets for gold during the Corona crisis must know that he is doing so at a high price. A reflex that precious metal experts and serious traders advise against.
A “contrary” development
As expected, the first months of 2020 saw the price of gold soar to a remarkable USD 1,670 per troy ounce (31.103 grams). Gold also broke all records in euro terms. When the stock markets collapsed on a broad front due to corona, the price of gold also plunged by a whopping 12 percent, contrary to expectations. Shouldn’t it be rising right now? This contradiction worried many investors, but it can be explained.
On the one hand, in times of crisis, investors create enormous demand for physical gold and thus present precious metal traders with major supply problems. On the other hand, the gold price does not arise in physical trading, but rather, as is customary in the market, through supply and demand on the futures market, such as the London Bullion Market (LBM).
At the most important off-exchange trading place for gold and silver, large investors have currently switched to sell mode. They do this, on the one hand, because it is worth taking the immense profit from the gold price increase of the last few months with them and, on the other hand, because they have to deposit security deposits, so-called “margin calls” with the brokers in case of losses.
After the governments’ billion-dollar aid packages and the central bank measures to flood the system with freshly printed money, general well-being is back on the rise. No one has to sell gold in an emergency to get cash. This plays gold into the cards, even if the spot price in London and the future price in New York have never been so far apart.
It cannot be ruled out that gold will also go sideways or downwards again. In the medium and long term, the abundance of money from the central banks will drive up the price of real estate, shares and also gold.
Born 1978 in Wetzlar, Germany, he is editor at Euro Leaders. His main topics are politics and finance. Feldhoff studied social and political sciences in Salzburg, Bochum and Utrecht. He held various positions in different media houses and agencies. He lives on the Lower Rhine.