Covid-19 pandemic, price momentum likely to support gold investment: WGC

The yellow metal had a remarkable performance in the first half of 2020, increasing by 16.8 per cent in US-dollar terms and significantly outperforming all other major asset classes.

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The high level of uncertainty surrounding the Covid-19 pandemic and the ultra-low interest rate environment supported strong flight-to-quality flows.
Mumbai: The high uncertainty in light of the Covid-19 pandemic coupled with positive price momentum may support gold investment going ahead, according to the World Gold Council (WGC).

The yellow metal had a remarkable performance in the first half of 2020, increasing by 16.8 per cent 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 $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, the industry lobby group said.

Like the 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, WGC said in a note

“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,” the council made its observations on the world economy.
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“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,” it added.

It said gold’s effectiveness as a hedge may help mitigate risks associated with equity volatility, and investors may consider gold as a viable substitute for part of their bond exposure.
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