Over the last 12 months, gold has brought a return on investment of over 26%, beating all major investment assets by a mile, as the comparison below shows.
It should be noted that gold’s return on investment during the last 12 months is similar to the average yearly return the precious metal has been bringing for the last 20 years. Can you imagine owning an asset that for 20 years has returned over 26% a year on average, doesn’t require your work or concern, and is even regarded as a conservative safe haven… In a previous article, we explained the reasons for gold’s extraordinary performance, courtesy of the Federal Reserve’s money printing machine.
Earlier this week, when the price of gold hit the highest mark in the past eight years, any careful investor looking to diversify into the precious metal should ask themselves: “Will this continue?” Last week, I shared here an opinion and a reason to why the rally is far from being over and the price of gold will continue to go up. Now, experts say there are five additional reasons why gold is set to soar.
1. Second wave of COVID-19
With several states reopening, it was expected that case numbers would rise, but no one expected that it would get out of control. If you are concerned about the virus, it is now statistically safer to take a trip to Italy than to Phoenix, AZ. As several states are seeing their cases surge and hospitals are nearing their full capacity, investors are diversifying into gold to hedge against the threat of a second wave of infections. Case loads are rising outside of the US as well, and travel restrictions are likely to ease off over the summer, opening the doors for the virus to spread yet again if appropriate measures are not taken.
2. Trade tariffs on Europe
The White House is weighing new tariffs on $3.1 billion of imports from the UK, Spain, France, and Germany. Should the trade war escalate, investors are likely to steer away from riskier assets, such as stocks, and towards safe havens like gold.
3. US–China trade war
Although the US and China reached Phase 1 of the trade deal, tensions are rising due to COVID-19 and the US stance on Hong Kong. China is importing less US agricultural products and has reacted with strong rhetoric to what it sees as US interference in domestic affairs. Equity traders don’t react positively to disputes between the two largest economies in the world, and we saw last year how such concerns jolted the stock market. If tensions worsen, investors are bound to seek out precious metals to mitigate risk.
4. US unemployment claims
Weekly unemployment claims are still high—the latest report says almost 1.5 million Americans filed new unemployment claims. Several states have reopened part of their economy, but some of them are already rethinking this decision due to peaking infection rates, so a return to lockdowns may occur in COVID-19 hotspots. Total unemployment is already historically terrible, and rising caseloads, let alone a second wave, will push even more Americans into unemployment. The effect of rising unemployment on the stock market will surely arrive, and the continuous support of the government, via money printing with programs like the CARES Act, will cause the price of gold to continue rising like it has been since the outbreak.
5. Earnings season
We are nearing the end of the third earnings quarter. Hopes were high that reopening parts of the economy would result in better earnings numbers, but the rising coronavirus infection rates—not to mention the fear of a second wave—will likely results in cautionary notes from US companies. The stock market rally has already lost its momentum, and investors should be looking for safer investments, such as gold.
For a more in-depth look at these five reasons, read this article by Naeem Aslam on MarketWatch: Gold Prices—Five Reasons Gold Is Set to Explode | MarketWatch