Wealth Managers, Gold Remains a Haven Into 2021 and Beyond
Wealth Managers, as we are well into the second month of 2021, many investors are hopefully anticipating a more positive year. COVID-19 is still with us, but with vaccines being distributed and inoculating more and more people, things are looking up. Along with government stimuli and businesses adapting to this “new normal”, recoveries are occurring in various sectors and regions. However, new infection waves and new COVID strains have created obstacles for already stretched economies.
Wealth managers, gold will remain an excellent hedge
Nevertheless, J. Rotbart & Co. continues to view gold, silver, platinum and palladium as havens for wealth protection and growth, whichever way markets and economies respond in 2021. If instability reigns, gold and silver have shown throughout the COVID crisis of 2020 that they can withstand turmoil better than most other investments. And if markets recover, gold will remain an excellent hedge for any fluctuations that may come.
Gold saw unprecedented rises in 2020
Not only did gold and silver perform better than many other investments in 2020, but gold prices broke records as well. COVID-19 threw the global economy into turmoil as supply chains slowed down or halted and every industry felt the impact directly or indirectly. Governments and central banks responded with lower interest rates and quantitative easing measures. This created the ideal environment for gold and other precious metals to shine, so to speak. And they did, even as other markets recovered, gold increased and maintained its value. Now the question is, will this performance continue into 2021?
COVID remains a major factor in the global economy’s future
The coronavirus will dictate the state of the world for a while. This variant and any future strains need to be fought and contained. And even after that, Wealth Managers, people, businesses, and countries must clean up, regroup, and move on in smart, prudent ways.
Continued COVID increases gold demand and prices
For Wealth Managers, if the COVID rampage continues, gold will keep its appeal and value as a hedge against market downturns and uncertainty, as well as wealth protection as it did in 2020. Gold prices may actually soar higher as traders already sheltered in the commodity will buy more and others who may have been waiting it out seek to recoup their losses from not holding any or too little gold. Especially as failing businesses wreak havoc on stock exchanges and other markets such as real estate and currencies. New strains may make this worse as the efficacy of current vaccines may be questioned, and countries reimpose strict lockdown and quarantine protocols.
Contained COVID may not dampen gold’s appeal
But let’s say that we succeed in containing COVID. Investors may return to higher risk assets. This could be a factor in decreasing gold prices. Nevertheless, it is unlikely that governments will respond rashly by raising interest rates or reversing many of the measures put in place to address the flailing economy during the pandemic. So, although some investors may feel confident in turning away from safe investments like gold and other precious metals, low interest rates and devalued currencies from quantitative easing may maintain their interest in bullion bars and coins.
Lawmakers may keep a holding pattern as developments unfold
Even as the US stock market, as well as other exchanges, was nearing record highs during the crisis, businesses were not as lucky. Investors may have shown their enthusiasm as they thought the pandemic was at an end, but many enterprises had to close or declare bankruptcy as they could not weather the lack of customers or supply chain interruptions. Lawmakers around the world are likely to be very cautious through the first half of 2021 at least as they decide on new stimulus measures or public health policies.
The US Dollar could be an indicator of gold’s future
Specific to the US, which remains the major economic influence worldwide, gold prices will also depend on the dollar index. The US Federal Reserve’s monetary policy determines this. Discussions from the most recent Federal Reserve meeting indicated an optimistic outlook, leading to an upgraded growth forecast for the US economy. If COVID containment and control continues, the dollar may strengthen as the Fed scales back its recovery measures to let the economy stand on its own two feet. This strengthening could bolster the stock markets, causing lower demand for gold and a price drop. This drop, if any, however, we feel may not be impactful. As other central banks are planning on increasing their gold reserves as a protective measure in case of a new COVID strain or second wave of infections, so will more prudent investors follow their lead.
Wealth Managers should be on the look-out for four drivers impacting gold
The World Gold Council’s Gold Outlook 2021 outlined four drivers that could impact gold prices.
- Economic expansion. During times of growth, investors may feel comfortable enough for more conspicuous consumption to show off wealth, such as with gold jewelry and ornaments (especially in China and India, two of the largest consumers of gold worldwide, who saw great declines in jewelry consumption during Covid-19).
- Risk and uncertainty. As demonstrated with 2020’s COVID turmoil, market uncertainties often cause investors to seek out the safe haven that is gold.
- Opportunity cost. If investors do not see growth or even savings opportunities in interest or currency rates, they may want an alternative from investments such as stocks and real estate that relies on those rates. Gold prices do not depend on such rates.
- Gold prices, much like any other demand-driven investment, rise or fall depending on price trends, market positioning, and investor capital flows.
It is important to look at all four of these indicators carefully. Each in their own way influences gold supply and demand across different regions and sectors, which in turn can cause the price of gold, as well as other precious metals, to rise or fall.
Gold still forecasted as a dependable investment
J. Rotbart & Co. sees gold as an essential part of any wealth protection strategy for 2021 and for years to come for Wealth Managers. This is the case regardless of whether the global economy smoothly or turbulently recovers or whether there’s a perilous financial crisis or a soaring upturn. A demand for gold in some form will exist, whether it is as a hedge for returned investment appetites or as a safe haven against instability, current for forecasted.
If you would like to find out more about the gold for your wealth protection or growth strategy, or if you are a Wealth Managers office, then talk to the experts at J. Rotbart & Co. We are happy to discuss your options and opportunities as well as how the firm can fulfill your precious metals needs.