Gold Has Outperformed All Assets In 2020 as Deep Recessions Loom In Ireland and Globally
“The possession of gold has ruined fewer men than the lack of it” wrote American writer and poet Thomas Bailey Aldrich at the start of the 20th Century. His sentiments were recently echoed by one of the most respected investors in the world, Ray Dalio who said that in the world of today “it’s not sensible not to own gold.”
Gold is the top performing investment in a volatile 2020 year to date. As the pandemic and lockdown of entire economies tip debt laden economies into financial and economic crises, gold rose 17% in dollar terms and more importantly for Irish buyers 18.6% in euro terms in the first half of this year.
2020 Asset Returns (Source: Finviz, July 1, 2020)
Gold rose by even more in other currencies as investors become concerned that the scale of the coming economic crisis will likely lead to currency devaluations. In the last 6 months alone, the British pound has fallen 25% against gold as the UK economy had the worst contraction since 1979.
The best performing currency and commodity in the world was gold and it also outperformed other assets including stock, bond and property markets. Most stock markets saw very sharp falls prior to some recovery in recent weeks but most stock markets were down in the first half, some significantly.
Gold also outperformed “safe haven” U.S. government bonds as the U.S. National Debt surged another $4.5 trillion in less than 4 months from $22 trillion in February to $26.5 trillion today, leading to deepening concerns about America’s creaking economy, it’s bonds and the dollar.
Property markets went into stasis or have fallen due to a lack of transactions. In Ireland, KBC estimates that Irish house prices could fall 12% to 20% in 2020 alone.
Many property funds have suspended redemptions showing the very significant liquidity risk in property funds. Most analysts are concerned that we are likely to see both residential and commercial property fall in value the coming months due to falling incomes leading to less first time and other buyers and falling rents impacting buy to let investment. Bank shares have fallen too due to concerns about the outlook for banks, their loan books and the financial system.
What Are the Fundamentals of the Gold Market In Terms of Supply and Demand?
There has been a surge in demand for gold by investors in Ireland and globally. Brokers, refineries and government mints were already struggling to fulfil strong demand prior to the government lockdowns which forced most major gold refineries, mints and even mines to shut down.
The physical gold market is relatively small when compared to stock, bond and indeed currency markets. All of the refined, investment grade (0.999 pure) gold in the world is 22 metres cubed and would fit on the centre court of Wimbledon. All it takes is a small amount of extra investment demand to push prices higher. Today there are very few sellers and a level of safe haven investment demand not seen since the financial crisis.
Gold in Euros -Monthly, 10 Years (GoldCore.ie)
What Is the Difference Between Paper and Electronic Gold and Physical Gold?
It is important to understand the difference between real physical gold and synthetic forms of gold in the form of various gold products and vehicles to get price exposure including crypto gold, digital gold via gold bullion trading platforms, gold exchange traded funds (ETFs), gold futures and gold CFDs.
If you are bullish on the price of gold and fancy a short term punt on gold, these are good ways to get exposure to the price. All are forms of digital gold, whereby you are trading gold in a digital manner and have the cyber, counter party and systemic risk that goes with this.
What is gold bullion? Well bullion is simply a precious metal – gold, silver or platinum – in pure investment grade format which means it is at least 99.9% pure or 24 carat. Each coin or bar is not “plated” or “layered” but pure solid investment grade gold which ensures liquidity and an ability to sell at competitive global market prices.
The safest way to invest in gold, either as a lump sum investment or in a pension, is to own physical gold in the form of gold bullion coins and bars where the investor has outright legal ownership of the actual asset and is not an unsecured creditor of a highly indemnified product provider. Collector coins are for collectors and should not be confused with gold bullion coins and bars.
The Outlook for Gold in a World of Massive Euro, Pound and Dollar Creation
It is important to think of gold in local currency terms. Our exposures as investors and savers is currently to the euro. The outlook for the euro is uncertain to say the least given Brexit and the likelihood of ‘Italexit ’ given the very poor state of the Italian economy and banks.
Strong safe haven demand for gold continues due to concerns about the outlook for the UK, EU and global economy, the unprecedented monetary response of the ECB, the Fed, the BoE and the other central banks and growing concerns that all currencies will be devalued in the coming months and years.
Gold will protect and grow Irish people’s savings and wealth in the coming years. In the very uncertain world of today, it is simply not sensible not to own some physical gold bullion coins and bars as a hedge and a safe haven.
Mark O’Byrne is the Research Director of GoldCore, Ireland’s leading gold broker and storage specialist (established 2003) who help Irish and international clients own physical gold in the safest ways possible. As seen on RTE, CNBC, CNN, Bloomberg etc. Visit Gold.ie for more information