2020 is a year of many firsts, it seems. Alongside the first truly worldwide pandemic of the globalised era, multiple asset classes are recording record gains; with gold being the prime example.
Earlier this year on August 4th, the precious metal surpassed $2,000 per ounce for the first time in history. While the performance of gold always thrives during times of economic uncertainty, extended lockdown periods and heightened geopolitical tensions have allowed the precious metal to reach unprecedented heights.
While this growth has become slightly subdued in recent weeks, the spot price of gold is still approximately 30% higher than it was at the beginning of the year. And with the UK’s withdrawal from the EU and the US presidential election still due before the end of the year; it’s possible that we could see market forces drive the gold price up to $2,500 per ounce by the beginning of 2021.
The reason for this is simple. In times of uncertainty, investors rally to safe-haven assets somewhat sheltered by the volatile shocks that could be experienced in the financial markets. Interestingly, while the prospects for gold is looking positive, a significant number of UK investors are retreating to cash savings. The question beckons – why is this the case?
The gold(en) standard
Despite gold’s recent performance, a survey of investors commissioned by HYCM indicates that security, above all else, is seen as the top priority when managing an investment portfolio.
Of the 900 UK-based investors surveyed, a vast majority (78%) identified as having money in a bank savings account. This was, by far, the most popular asset among those surveyed; followed by stocks and shares (48%) and property (38%).
While not entirely surprising, given the circumstances, it becomes clear that many are seeking to minimise their risk exposure regardless of the returns on offer. Looking to the future, almost a third (32%) intend to place more of their wealth into savings accounts, 21% into stocks and shares, 17% into property, and another 17% into fixed interest securities.
There is no denying that COVID-19 has affected their financial portfolios of UK investors. Based on the research commissioned by HYCM, 43% of respondents acknowledged that their assets have decreased in value due to COVID-19. What’s more, three in four say they are not planning any major investment decisions until 2021.
Obviously, seeking security is a logical reaction to the volatility seen in 2020; however, with interest rates hovering just above 0%, one’s savings may actually decrease in value over the long-term if kept in low-yield savings accounts. With this in mind, what are the other options available to investors in the closing months of 2020?
Other options are available.
For an asset able to make gains, even during the most tumultuous of periods, we return to gold. After its regular 6-month low was brought forward by the extreme nature of the pandemic, a summer of incredible value growth was predictable; though few forecasters were optimistic enough to accurately forecast just how growth was seen. Now that we enter the autumn, there will likely be new, affordable entry points for investors seeking to add this precious metal to their asset portfolio.
And then, in the winter, another surge in value seems eminently possible. While investors generally may still be sceptical about the precious metal, holdings in gold-backed exchange-traded funds rose 31% in the first seven months of 2020 – exceeding the annual increase for any previous year. This surge in interest in gold-associated exchange funds, when coupled with forecasts of gold reaching $3000 over the next 18 months by Bank of America, is indicative of bullish prospects for gold in the medium-to-long term.
If investors are keen on avoiding long-term portfolio devaluation, they should absolutely bear in mind the forecasts referenced above. The COVID-19 pandemic is by no means over yet, and there will always be great opportunities for investment among uncertain times. The challenge is finding these opportunities and determining when is the right time to buy and sell assets.
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Giles Coghlan is Chief Currency Analyst, HYCM – an online provider of forex and Contracts for Difference (CFDs) trading services for both retail and institutional traders. HYCM is regulated by the internationally recognised financial regulator FCA. HYCM is backed by the Henyep Capital Markets Group established in 1977 with investments in property, financial services, charity, and education. The Group via its relevant subsidiaries, have representations in Hong Kong, United Kingdom, Dubai, and Cyprus. For more information, visit the HYCM website at www.hycm.co.uk.
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