Investors embraced gold 2020

WGC reports,

Gold mid-year outlook 2020

Recently World Gold Council (WGC) released their Gold mid-year outlook 2020-Recovery paths and impact on performance. The report said Investors have embraced gold in 2020 as a key portfolio hedging strategy. Looking ahead, expectations for a faster recovery (V-shaped) from Covid-19 are shifting towards slower recovery (U-shaped), or potential setbacks from additional waves of infections (W-shaped).

Regardless of the recovery type, the pandemic will likely have a lasting effect on asset allocation. It will also continue to reinforce the role of gold as a strategic asset. And we believe that the combination of high risk, low opportunity cost and positive price momentum looks set to support gold investment and offset weakness in consumption from an economic contraction.

Gold outperformed in H1 as equities recovered: Gold had a remarkable performance in the first half of 2020, increasing by 16.8% in US-dollar terms and significantly outperforming all other major asset classes. 

By the end of June, the LBMA Gold Price PM was trading close to US$1,770/oz, a level not seen since 2012, and reaching record or near-record highs in all other major currencies.

Though equity markets around the world rebounded sharply from their Q1 lows, the high level of uncertainty surrounding the Covid-19 pandemic and the ultra-low interest rate environment supported strong flight-to-quality flows. 

Like money market and high-quality bond funds, gold benefited from investors’ need to reduce risk, with the recognition of gold as a hedge further underscored by the record inflows seen in gold-backed ETFs. Economic recovery may come in various shapes: The Covid-19 pandemic is having a devastating effect on the global economy. The IMF is currently projecting a 4.9% contraction in global growth in 2020, with high levels of unemployment and wealth destruction.

There is a growing consensus that a swift V-shaped recovery is morphing into a slower U-shape recovery or, more likely, the possibility that a recovery in H2 is short lived as recurring waves of infections set the global economy back, resulting in W-shaped recovery.

For investors, this is not only keeping uncertainty levels high, but may also have a long-lasting impact on their portfolio performance. Against this backdrop, we believe that gold can be a valuable asset: it can help investors diversify risks and may positively contribute to improving risk-adjusted returns.