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This article was published 25/4/2020 (510 days ago), so information in it may no longer be current.
The spread of the coronavirus hasn’t kept the city’s gold bugs at bay.
A steady flow of curbside pickup of gold coins and bars has become the norm in recent days at one of Canada’s leading sellers and buyers of bullion, Gatewest Coin Ltd. in Winnipeg.
"We’re busy selling, selling, selling," says its storefront manager Nick St. Pierre.
Demand for all precious metals — including silver and platinum — has grown in recent weeks, he adds. One sparkling commodity outshines the rest: gold.
Gold has seemingly been eternally revered as precious. Beyond its beauty, however, the metal has many desirable qualities, including being an excellent conductor of electricity, easily malleable, extremely resistant to corrosion and highly recyclable (it dissolves easily in acid).
It’s also scarce, and the combination of many of these factors has long made gold a universal form of currency.
Even today, decades after most nations abandoned gold as a reserve currency opting for the U.S. dollar instead, gold remains highly prized by millions of investors — often referred to as "gold bugs."
The precious metal also has a long track record of volatility — like most commodities — making it prone to wild price swings. Forty years ago an ounce of gold — its standard unit of measure — hit US$843, a historical high at the time and up from about $35 in the early 1970s.
Then its price bounced around the $200 to $500 range until the 2000s, eventually reaching its all-time high, nearly $1,900, in the aftermath of the 2008-09 financial crisis.
Ever since, its performance has been rather lacklustre. That is, until recently.
Today, gold is having another shining moment.
Head of research at the World Gold Council, Juan Carlos Artigas in New York City, says three of gold’s four main drivers of demand are currently at play.
The first and foremost driver at the moment is risk.
"During periods of high uncertainty, gold is seen as a safe haven."
And Artigas notes the pandemic has spawned many financial risks "including the expansion of budget deficits and volatility in the stock market."
As such, many gold investors today are bullish on the metal, thinking the Great Lockdown brought on by COVID-19 will afford similar price growth that followed Great Recession of 2008-09.
Back then, the price for an ounce rose steeply and fairly steadily. By September 2011, its price hit an all-time high at about US$1,895. That was roughly three years after the investment bank Lehman Brothers collapsed, which triggered what had been considered until now the worst economic calamity of modern times.
Well, move over crooked investment bankers that brought the financial system to a grinding halt.
A novel virus that spreads like the common cold among a global population with no immunity has outdone you.
But fears over unprecedented economic/societal upheaval are not gold’s only driver these days, Artigas adds.
Gold’s opportunity cost — another tailwind of its upside — is also peaking relative to other investment classes. While stocks are somewhat on the mend, their health is touch and go at best, particularly given dividends paid by many companies may soon be much less lucrative. As well, the risk-free asset class — government bonds — is paying yields so low that real returns (after accounting for inflation) are negative.
By contrast the price of gold has been on the rise.
The third driver of gold’s upside is momentum. This essentially means growing demand fosters more demand. Artigas says gold was already making a comeback before the pandemic — though its price did drop in the middle of March along with stocks and bonds.
"As a high-quality asset, investors sold gold to meet their need for cash to cover losses in other classes," he explains as the reason for its initial price drop last month.
Yet its price has since recovered and reached new highs not seen since late 2012.
That’s despite the fact its fourth demand driver, consumption for jewelry and industrial use have fallen off with much of the rest of the economy. Artigas says consumer and industrial demand make up about 40 per cent of global demand for gold.
But these demand sources have fallen off during the pandemic, particularly for jewelry, and are not expected to turn positive for many months.
That said, gold’s other market drivers have still pushed the commodity’s price higher since mid-March.
More broadly, "the last 12 months have been exciting for precious metals," says certified financial planner Chris Douglas in Winnipeg. Of course, gold’s price has soared in the last 30 days.
Yet looking further back, gold’s performance has often been less appealing, he adds.
During most of the 2010s, investors in precious metal funds — which largely hold gold mining stocks — made money one year and lost money the next, says the advisor with Douglas Financial Ltd.
As such, $10,000 in 2010 invested in one of these funds would probably be worth about $8,000 a decade later.
"By contrast, in the ‘little old lady category’ — Canadians on fixed income — that $10,000 over 10 years is worth about $14,500."
Douglas notes gold — while volatile — is a great investment if you time the market right. But that’s easier said than done, he adds. Even experts are wrong as much as they are right in this respect.
Then again, sprinkling a little gold into a well-diversified portfolio is not a bad strategy because the precious metal does periodically outperform stocks and bonds, including during times like these.
Furthermore, investors have plenty of ways to own it, from exchange-traded funds to mutual funds to gold mining stocks.
Then again, many prefer the old-fashioned way: one-ounce gold bars and coins.
To that end St. Pierre admits even Gatewest Coin has found it challenging to keep up: "Demand has definitely been really high."