From January 2020 to December 2020, gold has brought a return on investment of over 22%, beating all major investment assets by a mile.
It should be noted that gold’s return on investment during the last 12 months—26%—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.
In August 2020, when the price of gold hit an all-time high, any careful investor looking to diversify into the precious metal should ask themselves: “Will this continue?” I’ve shared here an opinion and a reason 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.
For our in-depth article on gold investing, click here.
1. Third wave of COVID-19
With several states reopening in the fall, it was expected that case numbers would rise, but no one expected that it would get out of control. That was the second wave.—now we’re in the third wave with case numbers setting new records almost daily.
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 pandemic. Case loads are rising outside of the US as well.
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 around 800,000 Americans filed new unemployment claims. Several states have gone back to lockdowns. Total unemployment is already terrible, and rising caseloads 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 a new stimulus bill, will cause the price of gold to yet again rise.
5. Earnings season
We are nearing the end of the fourth earnings quarter. Hopes were high that reopening parts of the economy would result in better earnings numbers, but the rising coronavirus infection rates and renewed lockdowns will likely results in cautionary notes from US companies. Investors should be looking for safer investments, such as gold.