When you take into consideration the markets’ risks and the current macroeconomic situation across the globe, gold may prove to be one of the best investments for 2020, if not the best of them.
Low-Interest rates – As we enter 2020, low-interest rates are expected to stick around for a while. The abolition of the gold standard in 1971 created a scenario that central banks could print money regardless of their gold holdings and gave them the power to print money. Since the 2008 crisis, central banks have used this tool to stimulate the economy. At the same time, central banks have increased public and consumer debt. A decade later, the largest ‘money print experiment’ in history seems to be continuing, which only further devaluate the value of real currencies. As a result, when asset prices are distorted and currency prices are distorted, gold remains one of the most attractive commodities in the market.
Stock Market Protection – Stock Markets are Relatively Expensive: Stock markets can not rise forever and a financial crisis is lurking in the near future. Earnings Multiplier for Share Price Above 25 (Compared to 15.5 Average in the Last 100 Years), Earnings Multiplier for Future Share Price Breaks to Level 20, and a sales multiplier of 2.35 (the highest since the bubble burst in the 2000s).
Yet, historically expensive stock pricing is not necessarily a reason for you to protect your portfolio. Unexpected events, on the other hand, such as a natural disaster or a geopolitical conflict may be a trigger for the next big short.
Some of the most notable events in 2020 can highly affect the global economy: US President Donald Trump’s weakness in polls in an election year; difficulties in US-China negotiations and the impact of trade-war; Brexit, and European and Chinese economies are in a perpetual fragile condition.
Protection against currency devaluation – Many investors around the world are buying gold against a possible devaluation of the world’s leading currencies, which as we have known in the past decade, become a huge conflict among top countries. In fact, in the past decade, many countries had a goal to devaluate their currency in order to get an extra tool to stimulate the economy.
Central Banks (Russia and China) increase gold reserves – Central banks in emerging markets increase their gold holdings, in particular, Russia and China. There are multiple reasons for the trend – Protection against the devaluation of the Euro and the USD as well as a country’s local currency. Another reason is to reduce the US dollar domination and by that reduce the political power of the United States in the geopolitical map.
Cheaper to hold gold – For years, holding gold was not a smart investment in comparison to a bank deposit or governmental bond. Holding gold does not provide an investor any yield. However, today, when more than a quarter of the world’s economy and hundreds of millions of people are forced to deal with negative interest rates, holding gold becomes an attractive investment. In economies like Japan (minus 0.1%) or Europe (minus 0.5%), there’s no reason to buy a government bond or keep your funds in a bank deposit.
Technical analysis, the possibility of breaking $ 1,600 an ounce – At the technical level, gold is kind of a strong buy. If it could break the resistance level of $1,6000, the next resistance level is at $1800 (September 2012). Anyway, just keep an eye on the $1600 resistance level.
How to buy gold?
There are multiple ways to buy gold. The first option is to “physically” buy gold in ounces, coins or bullion, but then you will have to pay to store gold. Silver Gold Bull Profit Trove, for instance, provides physical gold bars.
The most common way to buy gold is by purchasing an ETF fund through stock exchanges. SPDR Gold Share (NYSE: GLD) is the most well-known gold ETF. You can find more gold ETFs here.
Another option is to invest in gold mining companies, such as Barrick Gold – while this exposure does not guarantee close monitoring of gold prices, it does offer additional opportunities for upside, especially during periods of high tide.
The last option is to buy gold through a Contract for Difference (CFD). If you are not familiar with the term, you can read our guide about CFDs. A CFD basically allows you to speculate on the price of gold without owning the commodity, using a leveraged position. One of the most notable CFD brokers is eToro.