When the economy goes to hell in a hand basket, it’s time to buy gold. Currently the value of the dollar against foreign currencies is declining. The stock market is struggling, The Gross Domestic Product (GDP) declined 9.5% in the second quarter and the unemployment rate is 11.1% in the US and rising.
As the Covid-19 virus continues to run rampant in the US, investors are struggling to find safe investments with decent returns. The stock market is volatile with the Dow Industrial Average down over 10% from its February 12 high of 29,554. Bond and CD yields are close to zero. However, there is one bright spot in the
Investment arena—gold.
Why is now the time to buy gold?
- When the value of the US dollar falls, gold usually rises. During the “Great Recession” between 2008 and 2012, gold nearly doubled in value.
- In times of economic and geo-political uncertainty, gold typically retains its value. It is often called the “crisis commodity” as investors rush to buy it during uncertain times.
- Gold is a good asset to hold for portfolio diversification. The price of gold tends to rise when stock prices fall as in 2008. Historically, gold has had a negative correlation to stocks and other investments. In other words, gold goes up in value when the value of other investments declines
How does an investor buy gold?
Investors have several options when buying gold.
- They can purchase the physical asset in the form of bars and coins. Gold bullion bars can be bought at the U.S. Money Reserve and coins at the US Mint.
- They can purchase shares of gold mining stocks, such as Newmont Goldcorp (ticker symbol NEM), Barrick Gold (GOLD), and Freeport-McMoRan (FCX)
- They can purchase shares of a mutual or exchange-traded fund (ETF) that replicates the price of gold, such as GLD
For flexibility and ease of investing, stocks and funds are preferable to buying the physical assets. Owning gold bars and coins requires renting a safety deposit box to store them. Additionally, they are not as easy to sell as stocks and funds.
Is it too late to buy gold?
Gold has made impressive gains since the start of the Coronavirus. On January 31, 2020 gold was selling for $1,589 per ounce. Six months later on July 31, it closed at $1,889, an increase of almost 19%. In general, analysts do not see the commodity declining anytime soon. Most forecast gold prices rising through 2021 or until the pandemic is brought under control and the economy stabilizes
