Prospects for the World Gold Council for gold by mid-year

According to the World Gold Council, investors adopted gold in 2020 as a critical portfolio hedging strategy. Expectations for a faster (V-shaped) recovery from the Covid-19 is shifting towards a slower (U-shaped) recovery. Analysts also expect possible setbacks due to new waves of coronavirus infections (with a W-shaped recovery). 

Regardless of the type of recovery, the pandemic will likely have a lasting effect on asset allocation. It will also continue to strengthen the role of gold as a strategic asset.

According to the World Gold Council, its new perspective on the gold market examines the combination of high risk, low opportunity cost, and positive price momentum. It is aimed to support investment in gold and offset weak consumption by an economic downturn.

Gold performed remarkably well in the first half of 2020. The precious metal prices increased by 16.8% against the US dollar and significantly outperformed all other major asset classes. At the end of June, the LBMA gold price was trading near $1,770 an ounce. This level has not appeared seen since 2012. Gold prices reached record or near-record levels in all other major currencies.

Although equity markets worldwide rebounded sharply from their first-quarter lows, the high uncertainty surrounding the coronavirus pandemic and the very low-interest-rate environment supported strong flight flows to quality. Like the money market and high-quality bond funds, gold benefited from investors’ need to reduce risk. The recognition of gold for hedging was reinforced by record listings seen in gold-backed ETFs.

The yellow metal can be a valuable asset amid the financial uncertainty

The coronavirus pandemic is having a devastating effect on the global economy. The IMF is currently projecting a 4.9% contraction in world growth in 2020, with high unemployment and destruction of wealth.

There is a growing concern that a rapid V-shaped recovery is morphing into a slower U-shaped recovery. There is a possibility that a revival will be short, as recurrent waves of infection delay the global economy results in a W-way of recovery.

For investors, this keeps uncertainty levels high, but can also have a lasting impact on their portfolio performance. In this context, the World Gold Council believes that the yellow metal can be a valuable asset. 

In response to the pandemic, central banks worldwide have aggressively reduced rates or expanded asset purchase programs to stabilize and stimulate their economies. However, these actions lead to several unintended consequences on asset performance. 

Furthermore, widespread fiscal stimuli and rising levels of public debt raises concerns about long-term growth in inflation or a significant depletion in the value of fiat currencies. However, analysts consider deflation the most likely risk in the short term.

As these dynamics increase risk and lead to the possibility of ever-lower returns than expected, gold may play an increasingly important role in investor portfolios, the World Gold Council stated.