Finding certainty and sticking to fundamentals during the Covid-19 crisis

Mark Pey

May 27, 2020

The crisis and financial response have created a sense of uncertainty and gold market investors are not immune to this uncertainty. News headlines can seem to show the way forward but then can be contradicted by later headlines as the crisis situation continues to unfold.

This can create a mental tug-of-war as investors decide how to position their portfolios. For example, retail sales, including sales of gold jewellery, have shown a steep decline:

In response, though, governments have pledged more than $6 trillion in new borrowing to stimulate demand. So falling demand for gold jewellery has been outweighed so far by investors demanding currencies like gold that cannot simply be printed in unlimited quantities:

Shares and bonds versus gold

Some investments that compete with gold, like shares, have staged a rebound from their lows. But the real-world companies underlying those shares have taken historic hits to both their earnings and their balance sheets, casting doubts as to whether their share price performance can continue. (Absent, of course, even more money printing, with the same effect as noted in the previous paragraph):

And on the bond front, would you agree to loan someone $1000 at no interest, and after two years receive just $980 back? This is the position government bond investors in Europe and Japan are already in. With the U.K. now joining the NIRP (Negative Interest Rate Policy) Club and the likelihood that the U.S. is to follow shortly, it’s no wonder that capital preservation investors are seeking the certainty of gold. It also may pay no interest but at least they know their investment is secure, away from prying government hands:

The four horsemen

On the “safe haven” front we have all four of the horsemen of the apocalypse (war, pandemic, famine, and death) galloping around, so it’s no surprise that the gold price continues to be supported by a safe haven bid. With the world’s two largest economies gearing up for an epic battle over trade, cyber, Covid-19, and many other things, protecting wealth from worst-case scenarios is top of mind for investors of all sizes.

Uncertainty need not equal inaction

 We think the crisis so far has been a time for people and gold market investors to return to thinking about the fundamentals. The confluence of monetary, investment, and economic fundamentals continues to point to further uncertainty. But it’s precisely in times like these that gold comes to the rescue of investors and savers trying to protect what’s important to them.


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