Gold has not been able to do justice to its reputation as a safe haven. However, the precious metal could represent an investment alternative in volatile times.
Price adjustments have reached a level in the past few weeks that we haven’t seen since the financial crisis. Hardly any investment classes remain untouched, whether cyclical stocks, defensive stocks or commodities – each one has had to accept massive corrections.
Volatility could continue
As long as the extent of the economic damage caused by the coronavirus is not known, pronounced price fluctuations can be expected. Generally speaking, investments in solidly financed companies are wise in volatile times, as they are able to offer attractive dividend returns in difficult times as well (also read the following for more on this “Defensive stocks prove to be resilient”). It may now be possible that these securities can be acquired for prices that are more attractive and could be among the first to recover again once the view of the economic damage becomes somewhat clearer again.
Outlooks for gold tend to be positive
Gold is another alternative in volatile times. It’s true that the precious metal was caught up in the sell-off caused by the coronavirus, but it has been able to hold its own quite well with a drop of 10% since its highest level in March. And yet, gold has not been completely able to live up to its reputation as a safe haven in this turbulent phase.
One of the reasons for the sales could be that investors were forced to cut down on their gold reserves in order to cover losses in other investment classes. In that case, the price drop might not have anything to do with a reassessment by investors. Massive liquidity injections by the central banks could possibly boost the gold price.