The Covid-19 epidemic has hit the world hard causing a global slowdown in economic markets. Investors are making all sorts of moves to tackle the negative effect caused by the virus. From plummeting oil prices to a surge in the value of gold, the world is watching a never-ending show of uncertainty.
To grasp the situation at hand, we will look into investment trends during the pandemic that may have changed the world as we know it.
Owning gold has always been a way of accumulating and preserving wealth. During uncertain times like war or global crisis, the importance of the yellow metal increases even more as it is considered a haven during hard times.
However, Germany did something unusual in January of this year. The maximum amount of gold an individual could purchase without providing full identification was reduced to €2000, down from the previous €10000.
On the surface, this may look like a way for the government to curb money laundering and terror financing by complying with another EU directive. However, when you look further into the situation, it looks more like an authoritative move by the state to discourage the trend of buying a safe asset and pulling the money out of banks.
This current pandemic could create a potential run on banks due to a lack of money. In anticipation of this, the government may have decided to use the power of the state to try to change current market trends.
Another surprising trend is that investors are ditching stocks and bonds, and choosing instead to remain liquid by stockpiling cash. Hedge funds are also accumulating cash to take advantage of the market by redeploying cash into stocks and commodities when markets crash.
This trend could prove more fatal for financial institutions like banks than citizens purchasing gold. By law, banks only maintain a small level of cash at hand and they cannot afford a widespread pattern of people withdrawing their cash.
The banks simply would not be able to honour withdrawals if this trend spikes.
A third and most surprising trend is the shortage of silver in the market. Silver, like gold, retains its value and can prove to be a good investment during the difficult times.
However, a love of bullion has put pressure on miners to such an extent that in 2019, silver underperformed gold by 1:120. This resulted in increased investment into mining of gold and decreased investment into silver mining.
In the nutshell, bullion is in demand at the moment and will be in the near future. As long as the coronavirus pandemic persists, investors will continue to buy gold to safeguard their investments.