How Gold Will Play a Role in Economic Recovery

With the US economy still reeling from the effects of the coronavirus and the associated lockdowns, many are wondering when the recovery will finally occur. Millions of Americans are still out of work, many millions more are scared to return to their normal lives, and no one knows what the future holds. In the event of a resurgence of coronavirus, or a major wave of the flu combined with coronavirus, will state governments return to lockdowns? And in the event of a Joe Biden victory in November, will the federal government step in to issue its own lockdown?

The idea that we could once again be confined to our homes for weeks or months probably has many on the verge of panic. But more importantly, it would have markets panicking, as it would hinder any imminent recovery. As it is, the economic recovery has thus far been lackluster, with the V-shaped recovery being but a dream. 2020 looks set to go down in the history books as a year of recession, but will 2021 be any better?

The outlook for the future looks bleak, with continued slow economic growth, high unemployment, and mountains of debt issuance coming both from corporations looking for a lifeline and a government desperate to solve this economic crisis. Against that backdrop, there’s one asset whose future looks bright: gold. And gold will play an increasingly important role in an eventual economic recovery.

Gold as an Investor Asset

It shouldn’t be surprising that investor interest in gold is skyrocketing. Traditionally, investors and jewelers have provided the most demand for gold. Jewelry demand often outstrips investment demand during normal times, although there’s a bit of an overlap here since many people in India and other parts of Asia treat gold jewelry as an investment asset rather than as a fashion accessory.

But with the world economy weakening as a result of coronavirus, gold demand from investors has exploded. By the end of 2020, investment demand should provide more than 50% of gold demand, and that percentage could continue to climb into next year and beyond. We’re seeing a return to 2008-like levels of investor worry about the economy and financial investments, and gold is serving as a safe haven asset for investors just as it did in 2008 and the aftermath of the financial crisis.

Gold is unique in that it continues to perform well even when financial assets don’t, and millions of investors around the world are investing in gold to protect their assets against loss. To the extent that gold protects those investors and keeps them from losing as much as those investors who remain invested in stock markets, gold will help provide the catalyst that will be needed to allow investors to recover from what looks to be an inevitable stock market crash and preserve as much of their wealth as possible for the future.

Central Bank Gold Purchases

Central banks have been some of the biggest buyers of gold in recent years, taking advantage of relatively low gold prices to replenish their stores and shore up their balance sheets. In a world that has seen nothing but quantitative easing for over a decade, the central banks that create the most money out of thin air and that hold the least gold are the ones most at risk of destroying their currencies.

Countries like Russia and China have been among the biggest buyers of gold, but numerous other countries have purchased gold as well. As much as central bankers like to tell the general public that paper money and endless easing is perfectly safe, they know in the back of their minds that it would be all too easy to start easing too much, and for high inflation and even hyperinflation to result. That’s the consequence of perpetual money creation.

There is even speculation that Russia and China’s purchases of gold are part of a plan to develop a gold-backed currency for international trade, bypassing the dollar and the US banking system and dethroning the dollar from its position as the world’s reserve currency. While that wouldn’t be great for many investors in the long term, for those investing in gold it should give a major boost to the value of their investments.

Gold as the Linchpin of the Monetary System

To many people today, the idea of a gold-backed monetary system may seem far-fetched and antiquated, but over millennia of human history, the last 50 or so years are an anomaly. Only since 1971 has the world ever seen a monetary and financial system in which gold plays no role whatsoever. And the results of decoupling gold from currency have been as predictable as they have been disappointing.

Debt levels have exploded, prices have skyrocketed, and wealth inequality has grown to ever higher levels. More and more people are finding it difficult to maintain the same standard of living they’ve always enjoyed, and the pressure to take on more and more debt to fund one’s existence grows all the time.

The debt bubble that has accompanied the disappearance of gold will collapse eventually, and when it does, expect gold to reassert itself as the linchpin of the financial and monetary system. When it does, those who had the foresight to invest in gold will benefit handsomely from the gains that should result.

The Importance of Gold

Gold is neither a relic of the past nor a passing fad – it’s an asset that has been trusted by investors for centuries to protect their wealth against any number of adverse situations. In recent years gold has continued to play that role, protecting investor assets throughout financial crises.

Gold’s rising popularity among investors means that there are more options than ever to invest in gold, too. Among them is a gold IRA, which allows investors to invest in gold through an IRA, benefiting from the same tax-advantaged status as any other IRA account. Investors with existing retirement savings can even roll over their retirement assets into a gold IRA, allowing them to lock in their current investment gains and protect their wealth.

With an economy still mired in recession and an economic outlook that remains murky, can you afford not to invest in gold? Contact the experts at Goldco today to find out more about how you can benefit from an investment in gold.

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