Coronavirus, the real compass in times of crisis is the price of gold


It is impossible to understand well what is happening to the world economy in relation to the crisis of Covid and the policies put in place to stem the contagion. It is equally difficult to extract scientific truth from the pandemic, there are many theories – some decidedly imbued with conspiracy – but the facts are scarce.

What happens? But above all what will happen? An economic compass that in times of great crisis is rarely wrong is the gold price. So let’s try to rely on this to understand where we are and where we are going.

To understand the political value of the yellow metal, let’s take a small step back in history and go back to the 70s. After the tragic declaration of Richard Nixon, which put an end to the convertibility of the dollar into gold, it was thought that gold was destined only for the jewelry industry, but this was not the case. When immediately after it oil shock in the mid-70s, inflation began to gallop, to defend against the erosion of the value of paper coins, investors bought gold, confirming that there is no more popular refuge than yellow metal. And this is also true today.

Since the outbreak of Covid, the gold rush has started again and the price has started to rise again – today it is 25 percent higher than a year ago. In uncertainty, those who have liquidity park it in ingots and shares of gold mines. This behavior tells us that in times of danger and great uncertainty the price of gold goes up because the demand goes up. Even after the collapse of the Lehman Brothers the same phenomenon occurred and the price of gold began to rise steeply, reaching as high as 1,900 dollars an ounce in 2011. Then suddenly it started to go down.

The political nature of gold makes it extremely sensitive to political events, see Covid. But it is also true that being a safe haven belonging to a very small market it is also very sensitive alternative economic and financial opportunities.

The drop that began in 2011 is linked to the surge in stock market indices that attracted liquidity. Investors decided to sell gold positions to buy gold positions actions and so the price of gold almost halved: this means that those who bought it near the peak lost around 40 percent of their investment. A loss of this kind in the stock market only happens in the big collapses. It is therefore important to use gold with the utmost caution and be ready to abandon it at the right time.

It is true that in the past thirty years the price of yellow metal has only gone up – from $ 400 an ounce in 1990 to 1,900 in 2011 – but it is also true that until 2007 the price has only moved $ 200. From the collapse of Lehman to 2011, the price of gold in dollars has risen by 1200 dollars. This was the great moment of growth.

How can this brief history of gold help us navigate the uncertainty of the present? The answer is simple: the markets fear the return of theinflation, the money from the helicopter in circulation in the economic system is already pushing the prices of some goods upwards. Who claims that we are in a phase recessive wrong: in reality, operational goods and services, such as food, cost more. It is only a matter of time before inflationary trends start to be felt.

After all, even after the financial crisis in 2007, the fear was inflation. The trillion dollar stimulus that entered the system and ended up in the pockets of banks and financial institutions produced the so-called ‘asset inflation’, the inflation of assets from houses to estates to durable goods like cars. The ingot offered protection to those who could buy it.

Moral: let’s prepare for the inflationary wave, which unlike the second wave of Covid will surely overwhelm us all. And if you have several thousand dollars available buy some ingot.

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