The price of gold has risen over 30% this year, aided largely by the global pandemic, COVID-19, which raises the question: why does everyone turn to gold in such uncertain times?
The global economy has suffered massively due to the corona virus, with aggregate demand in countries at a very low level and not much business taking place. In such times, it is the government’s and apex bank’s responsibility to try and spur aggregate demand in the economy, and in most cases, they have done this by slashing borrowing rates to incentivize borrowing and pumping in money into the economy to spur demand. The natural result of such actions would be inflation, as money supply in the economy increases, causing the value of the currency to decrease. Even the US dollar, which is considered one of the most stable currencies in the world, is losing its value as the US Federal Reserve has kept borrowing rates at 0% and bought bonds worth billions of dollars. Coupled with a $2.2 trillion emergency relief bill, even the dollar’s value is on the decline.
These multitude of reasons have compelled investors to turn to the one of the most traditional forms of investment: gold. Gold is a scarce metal, whose supply is limited, unlike currency. This means that even in times of crisis, like the times we are living in right now, gold remains a safe option to invest money in, as it has been since times immemorial. This thought process has led many investors to put their money in good old gold, consequentially driving up the prices to over $2000 per ounce as of the time this blog is being published.
This, of course, doesn’t mean that gold prices will always remain high or get pushed up even more. Based on the next steps of the various governments of the world regarding interest rates and money supply, gold could either see more investors flock to it, looking for a safe haven to deposit their funds, or see people move back to liquid currency. As of now however, it seems to be that all that glitters, is indeed, gold.