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How Covid-19 Affects Gold Prices

We are in a pandemic in more ways than one. The novel coronavirus named Covid-19 has affected the entire world health-wise and also economically. Social distancing is a new term now understood to mean that we should distance ourselves from each other, which may help keep the coronavirus at bay but also has brought commerce to a grinding halt. More than 22 million Americans have lost their jobs in only one month. So how do you protect yourself financially in this time of crisis?

One way is investing. It may seem counterintuitive to spend money investing when it looks like recovery from the economic impact of Covid-19 will be slow. But there are ways to invest that can actually make you wealthier than when this whole pandemic began. Let’s look at one safe-haven asset in this post.

“A safe-haven asset is expected to retain its value or even increase its value in times of market turbulence when most asset prices decline,” according to Stack Path, an investment company that specializes in gold and silver investments. 

Gold and the Coronavirus

Stocks and bonds are normally traded on exchanges, which are places built specifically for trading. Gold, however, is normally traded as OTC, or “over the counter,” meaning it is traded between two parties away from exchanges like Wall Street. When the coronavirus was first called a pandemic on March 11, 2020, people began to panic. Fear arose and in direct response to the World Health Organization’s announcement, the stock market crashed to historic lows. 

When other viruses have had a world impact, like the ebola virus in 2014, the stock exchange reacted negatively as well. It began to rise again after about 2 weeks when the world’s response economically didn’t change much. The biggest pandemic in modern history before this year’s novel coronavirus was the Spanish flu in 1918-1919. Many companies shuttered their doors, leading to sharp spikes in unemployment.

Emotions affect investments

To those whose lives were impacted by ebola and Covid-19, economics was probably the last thing on their minds. Our compassion goes out to those whose families have suffered heartbreak from the effects of viruses. To them, the greater loss is in terms of sickened lives or lives cut short.

The fear of the unknown can cause individuals with apparently stable employment to hold back on purchases, waiting to see if the financial aftershock can be contained. Those emotions have an impact on investments, too. 

Is investing in gold a good idea during the pandemic?

Shoring up emergency funds is a good way to prepare for the possibility of job loss. And investing in gold may be the safest method of doing that. During the Ebola outbreak, gold prices actually declined throughout most of the scare. However, “gold moved higher by about 6% in the final corrective upswing and it took about 2 weeks,” according to Stack Path. Since history tends to repeat itself, we could expect to see a similar pattern during this pandemic as well. Buying gold while prices are lower means that you could come out of the current pandemic in better financial condition than you went in.

Gold has intrinsic properties. It will always retain at least a minimum level of real demand because it is not only used for money. Jewelry, electronics, and dentistry are just three of the ways gold is used beyond its monetary value. It’s impossible to counterfeit, it doesn’t lose its value over time and there is only so much gold on Earth to be mined. Inflation of gold is limited to how quickly it can be mined.

Looking at a chart from the Market Insider that shows gold trends for the past year, gold has steadily climbed except for two short-lived drops. In April of 2019, gold was trading at $1286.25. Today, it is trading at $1720.65. The drop from the coronavirus happened on March 16, just a few days after WHO declared Covid-19 a pandemic. It declined from $1697.40 on March 2 to $1490.85 on March 16th, a span of two weeks, the same pattern seen during the Ebola pandemic. Rebounding to today’s rate in just about a month, we can see how the market is reacting to Covid-19, in much the same way it did in 2014 during the Ebola outbreak.

Despite the continuing illness, deaths, and job losses, gold has continued strong. Perhaps now is the time that you should consider investing in gold.

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