Gold broke records in value in 2020 when almost all other markets around the world crashed during the pandemic. Was this an indicator of gold’s value after all these years of possession or merely a sentimental blip?
This is what it means to be an investment safe, when the world is in turmoil and other equities, bonds, or currencies fluctuate, a safe haven guaranteed investment stays stable, if not increased in value.
Gold has been such a currency for centuries, it is a finite element for which countries have learned to respect and trust on an international level. Yet, as the world evolves and 2021 becomes known as the Year of Cryptocurrencies/Tech Stocks, does gold still have its legacy?
The Historical Role of Gold as a Safe Haven
But is this true or a myth? Gold has undeniably reacted during these momentous occasions.
For instance, gold trading rose by over 25% during the Great Recession of 2008 when the stock market plummeted. It was a haven for investors in a panic. When inflation rose over 10% during the 1970s, gold outweighed inflation gain for gain and maintained value as paper currency became less and less effective.
Gold is limited. It’s universally loved. It’s not a derivative of banks and governments, but some third-party that can ultimately fail you. That’s why central banks, from China to Russia, hoard gold to insulate their balance sheets against fiscal shocks, it’s the same reason gold has been historically hoarded as treasure since it’s more of a theory than at this time.
Gold’s Performance in Recent Economic Events
When COVID-19 crashed equity markets, gold leapt 25% to over $2,000 an ounce as investors looking for safety turned to this shiny metal. When stability resumed and economies rebuilt, prices leveled back out, for gold is not immune to stability.
In 202-2023, when inflation soared and interest rates were raised, gold did not leap but remained steady, its relative stability helping offset currency devaluations. Due to the Russia-Ukraine War, gold was up 10% in March 2022 as investors panicked.
Gold was up 1% in April 2023 as inflation continued to climb, suggesting international crises positively impact gold. October 2023 Update: Gold was up 3% in October 2023 as the Middle East tensions heightened, suggesting that more international crises impact gold values.
Similarly, relative to equities or cryptocurrency, these increases are small, almost underwhelming, but gold isn’t an investment meant for that. Time will tell how it fares against the dollar.
Comparing Gold to Modern Investment Alternatives
The beauty of gold is that it remains consistent, but where does it stack up against the most instability investments of today? It seems Bitcoin can increase by 300%, in 2020, those who invested in it brag, but lose 50% the next day, gold increases much more gradually.
The stock market and ETF technology marketplaces can outpace gold when things are going well, but on a downturn, they drop like a rock, and gold does not. The stock market and real estate provide some grounding in support of reality. However, gold is more liquid than real estate, which does not turn back into cash immediately, so there’s an advantage there.
Yet the biggest difference with gold is how poorly it correlates with the stock market; thus, it acts more as a stabilizing element within a portfolio versus something that could grow daily alongside other modern investment opportunities.
Risks and Drawbacks of Investing in Gold
Gold also has drawbacks. Gold requires storage, physical gold needs safes and vaults, with fees. paper gold, ETFs mean no ownership, trading on the trust of others, and gold doesn’t pay dividends like stocks or interest like bonds.
It sits there purposefully sitting there, waiting for appreciation. Traders can manipulate the value of gold, traders can force the value to go up or down, and it’s challenging to redeem physical gold at times.
When things are going well in life, gold can be a burden when stocks rise. Gold is a safety net, but it takes time and effort to convert it back to cash when needed.
Final Words
No matter what the 21st century brought, investing in gold remains respectable. Gold rose by 25% during the recession of 2008 and the inflation of the 1970s. Investors use gold to protect themselves from corrupt politicians and failing banks, as gold is not affiliated with banks, nor is it readily available.
Gold increased by 25% in 2020 when the stock market crashed due to COVID-19, and in October 2023, it rose by 3% because of issues in the Middle East. In comparison, cryptocurrency markets are susceptible to fluctuations of 300% for Bitcoin one month and -50% the next month.
Where gold rises steadily over months and years (and recessions) is a good thing. People can hold gold, they render minimal neutral dividends aside from storage costs, and they don’t pay dividends. The worst that can happen is that people lose money if gold is defrauded, and all levels drop. Relative to stable/average custodianship, gold remains a prominent force in inflation/asset appreciation for diversification purposes.
