Rising Gold Prices in the Pandemic – Why?

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The Covid-19 pandemic has created a global shift in our attitudes toward health, work, family, and finances. With the escalating cost of living crisis, global supply issues, and the uncertainty of a new recession, the rising gold prices meant an increase of 28% in 2020.

In our deep-dive article, Gold4Cash examines the key causes of this tremendous increase in value worldwide; including global supply issues, investments, industry uses, and historic changes in gold prices.

Our first step is to review some examples of economic crises of the past, and their effect on gold prices before, during, and after each case.

The Threat of Recession

The value of gold is often the antithesis of stock market values. As the price of stocks begin to decline, the price of gold will generally enjoy an increase in market worth.

Traditionally, gold has risen in market value in the lead-up to a recession, a trend that can first be observed during the Great Depression of 1929-1939 in the US, when gold prices were fixed by the government instead of enjoying the free-market economy of today.

When comparing the history of financial market crashes and recessions in modern times, against the historic rise and fall of gold prices, there is clearly a tangible correlation between both events. For this reason it is important to understand the value that gold represents, and why those who make their money in stocks would turn to gold in preparation of an economic crisis.

Is Gold a Safe Investment in an Economic Crisis?

As can be observed in the charts above, gold consistently holds, and even gains, value more reliably than stocks, houses and technology.

The reason for this is because it is impossible for the value of gold to reduce to zero entirely. It is a precious substance that can transcend its monetary value, as well as be repurposed to suit a variety of needs.

Investment in stocks or the housing market may offer more lucrative gains, but they also present a much greater risk than gold, and for this reason, in uncertain economic times, investors will turn to gold to secure their finances. This is an ethos that is perfectly illustrated in the above examples of recession, where assets such as houses or shares can reduce in value to the point of creating huge losses for the buyer.

Gold is not something that is invested in with the intention of making huge financial gains, but rather as a safeguard against making a loss.

For example, if you were to buy a house for $200,000 today, it could end up only being worth $150,000 the following year due to a number of outside factors, in some cases this can be as simple as more houses being built in the same area, or a general lack of interest from buyers in the area your house is located.

Conversely, if you were to buy $107,520 worth of gold in 2016, then the following year it would be worth $116,200 – not a particularly huge gain, but one that is almost guaranteed year-on-year.

For this reason, it can be concluded that gold offers an extremely safe, reliable method of securing your finances in the long run, with minimal risk of loss.

Technology

The impact that the technology market has on the value of gold cannot be understated, yet for many people the use of gold in everyday items such as computers, phones and cars is not common knowledge.

Gold is used in most microchips as a semiconductor, owing to the fact that gold does not degrade or corrode like other metals such as tin or copper will. It is also highly electrically conductive, and  for this reason gold is used for electroplating and wiring in semiconductors, as the strength of the electric signal will not degrade over its lifetime.

In essence, the demand, and therefore value, of gold will increase along with global demand for technological supplies.

Lockdown and the rise of working from home

Following global lockdowns in 2020, the consumer demand for home electronics increased by over 13.1% globally according to PCMag, an increase which had not been seen since 2010 – when smartphones became commonplace items.

Working from home meant the demand for ‘office-based’ technology such as computers, laptops and monitors, had now increased exponentially. For every communal piece of technology you might find in an office, such as a printer or scanner shared between multiple colleagues, it was now a requirement that each person had access to this equipment in their own home, in order to properly perform their job role.

This shift in work dynamic drove production within the technology industry to unexpected heights, and even stalled the release of new, non-priority technology such as the Playstation 5, released later that year – the demand for which is still not being met as of 2022, due to the global semiconductor shortage.

Summary

In this article we have discussed many of the historical factors that will increase the value of gold, including new, unprecedented circumstances which have further driven the price of gold to record-breaking highs.

The threat of recession has had a huge, if predictable, effect on the prices of gold today, and we can see that the trends of the past are being followed every year, with most experts predicting a new recession beginning in 2023.

What is truly interesting about the rise of gold prices during Covid-19, has been the industries that have unexpectedly driven the value up for the general public. Consumer habits and global crises have managed to cause a huge rise in gold prices, and it can be assumed that these increases will continue into 2023.

As a time-proven method of surviving inflation with your finances intact, there has never been a better time to invest in gold.