Why are Gold Prices Soaring in the Midst of a Pandemic?
Want to invest your money and you are neither an equity person nor a mutual fund person and interest on fixed deposits is too low for you, what should you do? Of course, you should go and buy gold! Most people buy gold for making jewellery. It is also a place of investment for many. The precious metal has long been used by investors to hedge themselves against inflation. Considered a safe haven by those who don’t want to risk their savings in the stock market, it has always given positive returns to investors. Losing in the glittery metal market is far less likely but in the midst of a pandemic, every sort of investment seems to be too ‘dangerous’, so why are people still buying gold?
Whenever there has been any economic crisis, people tend to stay away from the stock market because market crashes are highly unpredictable. We all know about the 2007-08 financial crisis, and how in every country there was reluctance in investing in the stock market. However, people who still had savings went right to the commodity exchange and bought gold. This was clearly visible from the fact that the rally in gold continued from 2007 to 2011.
This is what we are witnessing in this current scenario with the coronavirus spreading all over the world and lockdown of economies leading to bankruptcy for many companies, people are pulling out their money from stocks and other financial instruments and buying bullion to park their money in safe investments. Exchange-Traded Funds (ETFs) have been piling up on gold reserves as well, which has more than made up for the domestic lack of demand. Demand for gold comes from another significant set of investors who tend to invest in real estate. The sector itself being in limbo due to the pandemic has forced such investors to invest in the yellow metal. Additionally, the metal is benefitting from the ultra-loose monetary policies being pursued by bankers and expectation that such a stance will tend to continue in the long run. Rising fiscal deficits and increasing debts are also contributing to the rising shift to gold. The fiscal policies adopted and the printing of more currency have led to inflation and have been the contributing factors in the current rally in gold.
Currently, central banks around the globe are regularly keeping a check on the economy and are providing liquidity. During the past few months, central banks too, have been buying gold and increasing their gold reserves in order to face any unforeseen circumstances. Central banks of China, Russia and India were the biggest buyers of gold in 2019, and many countries are still adding more to their coffers. This rally is expected to continue until we see any stability in the stock market and people feel safe to buy stocks.
Gold prices have gone through the ceiling in the past few weeks and every banker has his/her own perception regarding the future price movement. All in all, it remains to be seen whether gold prices will continue to rise, or will gold lose its steam. However, the metal has yet again proven its mettle in trying times, when every other investment fails to provide returns, it keeps its investors happy.
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