Gold is and remains an invaluable long-run hedge in 2020

It is traditionally a bulwark against inflation and market instability, for any risk-intolerant investors portfolio.

Gold has long been regarded as having a negative correlation with equities and a positive correlation with inflation.

To put it another way, gold is seen as a good hedge and a ‘safe-haven’ investment during times of volatility, market insecurity and local or global recession.

Gold is currently at a seven-year high, and many macro and market indicators suggest a continued growth in the short to medium term.

But questions remain. Bullion Or ETF? What’s a good level of commitment? And what is the downside?

Gold Bars

The yellow metal is a blue-chip investment.

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Gold was one of the highest-performing investments in 2019.

Gold showed an 18.5% gain in 2019. It started at US$1,286 per ounce and ended it at $1,525. It slowed in the last quarter of 2019, but there’s certainly cause for optimism for gold investors this year. It currently stands at $1715*.
*(May 2020)

Today, the yellow metal is a blue-chip investment amid the market uncertainty following the longest-ever market expansion period. As the short-run debt cycle moves toward a recessionary period, and perhaps a major one, you should expect gold to perform well through 2020 and into 2021.

gold price 2019

A Hedge STRATEGY FOR sophisticated investors

2020, to say the least, has been a rough ride. And we are not yet halfway through! Only one thing is certain, there is more uncertainty to come. The global financial system is threatened by volatility and  instability. Traditional markets are not performing as they were, as many investors may have noted. During times of economic crisis, gold and other precious metals tend to retain their value  and indeed,  often appreciate as well. Gold can certainly provide a good anchor for your wealth.

“Unstable geopolitical times present lucrative opportunities for gold investors.”

Apart from the obvious huge effects of the coronavirus lockdown and recession, another intriguing geopolitical development for gold investors is the China-U.S. trade war. The ongoing trade war is showing little real sign of stopping anytime soon, and the battle between the two powerhouses had already brought the American manufacturing sector to a 10-year low. Even if things improve with the implementation of the tentative agreement announced on December 12 last year, or there is a change of administration coming up later in this year, the U.S. manufacturing sector will still suffer from poor corporate investment and an uncertain policy environment. This is before we even factor in the effects of the virus into the situation.

READ: The Biggest Financial Event In Your Lifetime Is Now Unfolding

A recession in the States and indeed, globally for the first time in over a decade would spell disaster for the equities market. A recession is a positive growth indicator for gold investors due to the negative correlation trend that gold has shared with stocks.


Bullion Or Exchange-Traded Fund?

That choice is largely a matter of your individual tax strategy and your personal preference. An investor has the option to purchase shares in a gold-backed exchange-traded fund (ETF) or a physical asset in the shape of gold bullion or coins.

The ETF route often has superior liquidity and convenience, while physical gold in the shape of bullion or coinage allows investors to have direct ownership over the commodity.

Shares in gold-backed ETFs also rose sharply in 2019 as did gold itself.

Bear this in mind: precious metals–backed ETFs store their holdings in bullion banks, which can accrue massive losses for investors if they default or declare bankruptcy for any reason. Intelligent and canny investors might well consider putting their money in physical gold bullion that they store themselves as a hedge against counterparty risk.

The Downside

“There’s hills in them thar gold!”

Gold is a source of funding for margin calls that are made on depreciating assets during economic crises. This effect causes a forced sale of gold across the market, which deflates the price. However, generally, later in the economic cycle, as monetary policy and interest rates mitigate the contracting market conditions, gold begins to rebound beyond its initial price point. But nothing is certain of course.

In early 2008, the price of gold fell by about 25%  – but subsequently recovered in the following months. A credit crunch like that which happened in 2008 may cause all sellable assets, including gold, to drop in value. Through 2010 and 2011, the price of gold continued to fall amid relative gains made by the U.S. dollar.

It’s also worth noting that gold has an uncertain track record during times of hyperinflation. Important! Gold should only be valued relative to your home currency.

NB: The information provided here is not investment, tax or financial advice. You should always consult with a trusted and  licensed professional for individual advice concerning your specific situation. We can certainly help. You may contact us here.


AIP Recommended Allocation

Gold BarsAllocating 5% to 15% of your portfolio to precious metals — with the majority in gold — could be one of the best defenses against an economic downturn and an uncertain geopolitical arena in 2020.

Get advice based on your individual and unique criteria.

For HNW individuals, globally mobile high earners, institutional and sophisticated investors only.


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