We’ve heard a lot about investing over the past year, but have you taken action?
Which one are you? 👀
Interest rates on savings accounts are plummeting and uncertainty is still pretty high, so if you’re like the rest of us it’s likely you’re focusing on protecting your long-term finances. 2020 was a crazy year for gold investors thanks to the Coronavirus pandemic. If you are considering investing in the precious metal this year (we hope you are!), you may be curious as to what to expect from gold in 2021…
What happened in 2020?
In 2020, the gold price did one incredible thing: it crossed $2,000 per troy ounce! But it didn’t stop there, the price of the precious metal remained high over the course of the year. There are four main reasons why this happened:
- The Covid-19 pandemic caused a global stock market crash in March. How many of your favourite shops, restaurants and pubs shut for months? Repeated lockdowns also interrupted the gold supply chain. Businesses were forced to temporarily close, which led to a diminished supply of gold. This increased its price.
- Uncertainty surrounding Brexit also saw investors choosing safe-haven gold investments over the stock market. With over 18 months of delays, investors looked for safety in physical assets such as gold.
- Even more banks and financial institutions have been increasing their gold reserves due to negative interest rates.
- Finally, many of the world’s top financial experts have been promoting gold investment. Looking at market conditions in 2020, Hard Rock analyst Eric Coffin stated, “It’s a perfect storm for gold”.
In other words, it was a crazy year for gold!
Events in 2021
Here’s what is influencing the price of gold in 2021. 👇
Unfortunately, here in the UK, it seems we’re living in a never-ending cycle of lockdowns. Until the vaccines are widespread among the population, there is no chance of returning to normal life even close to pre-pandemic levels. With uncertainty remaining high, more investors are likely to choose gold over traditional stock market investments. More demand for gold = higher price of gold.
Having said that, uncertainty might decrease over the next few months. As the vaccine roll-out happens, the economy will stabilise and therefore so will the stock market. Down the road, the price might decrease and settle at a lower rate than today. The important thing to note is: this will take time. Vaccinating everyone takes a while, especially if we’re doing every country in the world. 🌎
Low interest rates
In the midst of the 2020 economic crisis, the Bank of England dropped its base interest rate to 0.1%. This means that in your regular savings account, you are now making 0.1% every year (that’s £1 if you’ve got £1,000 saved). Yes, that’s really not much. And that’s why a lot of people are looking to put their money somewhere that actually makes money.
Although the stock market is usually a solid place to put your money, the recent volatility and threat of future market crashes rules it out for some. This means many investors are heading towards gold, which is lower risk, beats inflation and is a more stable investment option for long term returns.
Brexit and the pound
Now that the Brexit process is moving again, the pound seems to be strengthening. Even though the deal has gone through, we still don’t really know what’s going on, or how it’s going to work. At the moment, the pound is still very weak, which negatively impacts stock market gains.
So investors are looking towards the oldest currency of all: gold. When the stocks decrease in value, we tend to see gold doing well. We’re likely to experience this again in 2021 alongside the economic uncertainty brought by Brexit.
Instability Across The Pond
With the 2020 US presidential elections now over, many were hoping for a smooth transition into the new term. But it looks like America is not settling any time soon, with a recent coup attempt and pockets of rioting reported in the first week of January. What a way to welcome 2021! America has a large influence on the world stage and a big impact on the economy. While things are unstable or unsettled, we are likely to see the price of gold remain high.
Higher demand for gold bullion
In 2019, more people bought gold ETFs and gold stocks rather than gold bullion. In 2020 and 2021, this is now changing. Investors are turning towards physical gold because it’s an asset that sits outside the monetary system and is not subject to the whims of politicians and oligarchs. It’s also not something that can be printed endlessly by the government. 👀
There is also a concern that due to the pandemic, the supply of gold may suddenly be suppressed without much notice (this happened mid-2020). A short supply of gold bullion = increase in the price of gold.
Could gold go down?
The main scenario where we see a decrease in the price of gold is if Covid is quickly and completely eradicated by strong vaccines, all over the globe. In this case, not only will gold miners be able to work at full capacity and therefore increase supply, but other traditional economic investments will appear to be more stable.
If this happens, people will switch back to the stocks, bonds and maybe even savings accounts. However, for as long as uncertainty remains in 2021, gold is an essential investment for anyone who doesn’t want to be hit too hard by the pandemic. If we’ve learnt anything from 2020 it’s that it’s always better to prepare for the worst while still hoping for the best. And what better investment asset to prepare you for the worst than gold? 💰
The best thing you can do when uncertainty is high is to have a diversified portfolio. This helps reduce overall risk while still growing your savings and wealth over time. We believe every family and individual should hold a percentage of their savings in gold. At Minted, you can start with as little as £30, and we’ve made it simpler, cheaper and easier than ever. Create a free account to see why. 👇