With the coronavirus crisis having now lasted over six months, and with no end in sight, the outlook for the US economy continues to look dire. Over 60 million Americans lost their jobs at some point during the crisis, and millions remain out of work. Thousands of companies have closed their doors forever, and thousands more are hanging on by a thread.
The US economy contracted by nearly 33% in the second quarter of the year, and the V-shaped recovery that many had hoped for has yet to materialize. Stock markets seemed to shrug off the malaise, fueled by trillions of dollars in Federal Reserve stimulus. But with the possibility of more stimulus uncertain, investors are beginning to worry.
There has been one prominent bright spot for investors throughout this crisis, namely the performance of gold and silver. Gold and silver, as they have in previous crises, have demonstrated that they are once again acting as safe havens for investor assets. Spot prices for both gold and silver have soared recently and, as anyone who has tried to get their hands on physical coins has discovered, the actual metals are hard to come by and commanding tremendous premiums when they are found. In fact, the disconnect between spot prices and actual sale prices indicates that gold is set for significant gains in the coming months.
How Gold Prices Fluctuated When the Pandemic Began
The gold price in 2020 started around $1,500 an ounce, and climbed to nearly $1,700 an ounce as the impact of the coronavirus on the Chinese economy became noticeable around the world. But once the coronavirus spread and began to impact Western countries, investors and financial markets panicked, with gold giving up all of its gains for the year.
To its great credit, however, gold didn’t perform as poorly as stock markets. While the Dow Jones and S&P 500 lost about 35% of their value in March, Gold didn’t suffer nearly the losses that stocks did. And gold not only bounced back quickly, it went on to set a new record price over the summer, at one point getting close to $2,100 an ounce.
Silver performed in much the same fashion, falling from nearly $18 an ounce to around $12 an ounce in March, before rebounding to over $28 an ounce in September. And silver still has tremendous room to grow, as it remains undervalued relative to gold and far under its record high price.
3 Reasons Gold and Silver Prices Have Risen During Coronavirus
While most analysts expected gold and silver prices to rise in 2020, both metals have far exceeded expectations. Gold at $1,700 an ounce was considered an aggressive call, yet gold far outstripped that weeks ago. Here are three reasons why gold and silver prices have risen.
Flight to Safety
As soon as economies went into lockdown due to coronavirus, economic activity ground to a halt. Investors and markets knew this would have a negative effect on the economy, and many people were suddenly looking to boost their cash holdings to withstand what they saw coming in the future. That explains the initial drop in the price of both gold and stocks.
Once investors had built up their cash stores, they began to look for safe and stable assets. With stocks iffy due to concerns about the future of retail consumption in the age of coronavirus, gold and silver stood out as safe and secure assets for investors to hold. And as more and more investors sought the safety of gold and silver, their prices began to increase astronomically.
Uncertainty About the Future
Investors also feared what might happen in the future. No one knew how long the lockdowns would last, how many people would lose their jobs, and how hard economic activity would be hit. Even today, there are still millions of people out of work, and the economy is nowhere close to being fully recovered.
The future of the economy is still uncertain, and there’s a strong possibility of a double dip recession, with economic growth stagnating once again due to reduced consumer spending, high corporate debt levels, and doubts as to whether governments will take the right actions with respect to coronavirus. In an era of uncertainty, investors flock to what they know and trust, and what they know and trust is gold and silver.
Loss of Faith in the Dollar
With the federal government having spent over $3 trillion to combat the effects of coronavirus lockdowns, and with the Federal Reserve having monetized much of the debt issued to cover that spending, the future of the dollar is also looking uncertain. And now that the Federal Reserve has stated its desire to further stimulate higher inflation, savvy investors realize that the real value of their dollar-denominated investments will likely fall even further.
Couple what has already happened with the possibility of further trillions of dollars of stimulus spending, debt issuance, and debt monetization, and you have a recipe for potential hyperinflation. With the Fed determined to keep asset prices elevated by creating more and more dollars out of thin air, the dollar will continue to lose value and purchasing power, which is leading more and more investors to protect their wealth with gold and silver.
Should You Add Gold to Your Investment Portfolio?
The decision of how to structure your investment portfolio and which assets to invest in is always a personal decision that investors should make based on their risk appetite, financial goals, etc. But just by looking at the numbers, it’s hard to deny that gold is a very appealing asset during troubled times such as these, and a good choice if you’re looking to diversify your portfolio with gold.
From the worst part of the 2008 crisis until their highs in 2011, gold nearly tripled and silver nearly quadrupled in price, bringing investors a rare sign of hope in an era when traditional financial investments seemed like guaranteed money losers. Investors who put as little as 30% of their investment portfolios in gold and silver before the financial crisis not only saw significantly less capital loss during the crisis, but they also experienced significant asset growth after the crisis, and their portfolios are still worth more today than if they had stayed 100% invested in stocks.
If gold and silver were to repeat this type of performance over the next few years, and there’s every indication that they could, investors could once again stand to make huge gains from their precious metal investments. With the outlook for the economy not looking promising, gold and silver could end up being some of the best-performing assets of the next decade.
Protect Your Retirement With a Self-Directed Gold IRA
By now it should be clear to most investors that it’s going to be quite a while before we return to anything approaching normal. That means that investors expecting stock markets to continue pushing through to new highs will be sorely disappointed. With a V-shaped recovery out of reach and a severe recession possibly around the corner, numerous investors are making the move to invest in gold and silver while they still can, protecting their retirement savings and hoping to benefit from gold and silver’s growth potential in the coming months and years.
With a gold IRA, you can even roll over existing retirement savings into gold, allowing you to maintain the same tax advantages you already enjoy in your current retirement accounts, while being able to invest in physical gold coins and bars. When you take a distribution from your gold IRA, you can choose to take the distribution either in cash or in gold. To learn more about the advantages of a gold IRA, take a look at Goldco’s gold IRA guide.
If you haven’t protected your retirement savings with gold and silver yet, what are you waiting for? With potentially many more months of coronavirus restrictions ahead of us, continuing slow economic growth, and the possibility of both a debt bubble collapse and a stock market crash, the rest of 2020 isn’t looking good for financial markets. The outlook for 2021 isn’t looking great either. Do you want to make sure that your assets are protected now by investing in gold and silver, or do you want to continue hoping for a miraculous turnaround to a very weak economy and stock market?