Few could have imagined how quickly things could deteriorate in early 2020. The growing COVID-19 outbreak has demonstrated how black swan events can disrupt the status quo, and flip investor expectations upside-down, with little prior warning.
In the meantime, investors have exited the stock market in large numbers and piled into higher-class assets including bonds for safety. However, this simply reduces the yield they can garner, and boosts the appeal of assets such as gold for investment purposes.
Learn about the latest developments in the gold investment market here.
Bonds lose yield but gold shines
Time and time again, investors reiterate that gold lacks yield. That’s true – stocks pay dividends, but with increasingly diminishing returns lately. Bonds seem like a safe bet, as central banks including the Federal Reserve and Australia’s RBA have made emergency rate cuts, to stem the flow of negative economic statistics.
But with yields on bonds dropping close to zero, they effectively make a net loss on investment, when taking inflation into account, assuming it remains close to two percent in the long run.
Gold lacks yield, but can deliver some impressive gains based on price alone, when it’s in the midst of a bull market. A lack of return on bonds, sliding stock prices and sinking commodity valuations for things such as oil and copper suggest that it’s time to return to gold, the safest of safe havens.
Investors have wisely taken this into account, with gold moving to all-time highs in pound sterling terms – gold has managed to break above £1,300, partially because of the US dollar price rising, but also because the pound is sinking, owing to jitters about how this year’s Brexit trade negotiations continue.
Just as we mentioned in our end-of-year review in 2019, the Brexit saga is far from over. This means plenty of potential for volatility for the pound throughout 2020. Keep track of movements in the gold price with our Live Gold Price Tracker.
Volatility reigns supreme in 2020
The COVID-19 outbreak demonstrates how volatility has returned to the markets, after months of apparent calm. Lower interest rates would have been seemingly ridiculous just two years ago or so. Now we have central banks actively making emergency rate cuts, fearful of the spill over effect of a virus which has already brought the Chinese economy to a halt.
Gold has traditionally benefited greatly from periods of great uncertainty and volatility – remember how prices rose exponentially, hitting a string of all-time highs in 1979-80, during the Soviet invasion of Afghanistan.
Or more recently, recall how gold jumped during the US debt ceiling crisis of 2011, and again in 2016, following the UK’s EU referendum surprise. Gold is best-placed to weather geo-political storms, as it has a track record of remaining a lucrative asset, even if all others lose their edge or their allure.
The COVID-19 outbreak continues to impact markets, largely due to uncertainties over precisely how many people are infected. For example, the way cases are counted in the US differs from how China has been keeping track of infections. In this vacuum, investors have voted with their feet, deciding to invest money in safer places.
As of March 2020, official sources estimate the number of cases to be over 100,000, most of which were reported from China. However, while the infection appears to have been contained by Chinese authorities, it has continued to spread, particularly in countries such as the US, the UK and Italy. China’s more hard-line approach might not necessarily be possible to repeat in countries such as the UK.
For the latest information about the number of COVID-19 cases as they are reported, check out this useful COVID-19 dashboard.
Gold prices at all-time highs
The rising price of gold is especially beneficial for British investors, as gold has simply never been worth so much in pound sterling terms. Gold prices have jumped 85 per cent since mid-2015 alone, beating the performance of the stock market and the bond markets.
And that price action was only just enough to help gold make a fresh all-time high – much of those gains have occurred since mid-2019. Imagine what prices could be by year’s end in 2020. Brexit shenanigans and COVID-19 panic could propel prices much higher, aided by a weaker pound and softer economic data from the rest of the world.
It’s really just a question of investing sooner rather than later, if prices are expected to continue climbing in the coming months.
Buying gold with UK Bullion
UK Bullion has just the gold investments to suit the current climate. We offer some of the most diverse ranges of gold bullion bars in the UK, plus gold coins that continue to attract high demand both domestically and from overseas.
The benefit of investing in gold bullion with UK Bullion is that we offer a range of VAT-free bullion bars, so you don’t pay more than you need to invest in this incredible precious metal.
This year hasn’t failed to disappoint, in terms of impressive gold coins to choose from. The 2020 Gold Sovereign is particularly attractive for many, free from VAT and Capital Gains Tax. Worth £320.88, if you order today, you can expect to receive it within a week.
Alternatively, we can facilitate safe storage of your gold investment in a high-security vault. For more information about ways to keep your investments safe for the long term, read about our Secure Vaulted Storage Option here.
Whatever you choose to do, the markets have clearly decided to increasingly buy gold as the safest bet, as COVID-19 rattles markets. Whether it settles down or becomes a more widespread problem worldwide remains unclear at the time of writing, but this is all that’s required to fuel a gold bull market for the foreseeable future.
For more information about investing in gold, get in touch with UK Bullion today – call us on 0800 090 3256 or contact us here.