At the start of the last decade, all anyone could talk about was gold, and for good reason. From a relatively forgotten asset to streaking toward all-time highs, suddenly, everyone got a little gold fever, especially in 2011. But in that year, the precious metals complex also collapsed from the bubble. Since then, the sector has been an agonizingly frustrating one.
However, that frustration may soon be coming to an end. I don’t think it’s any coincidence that the coronavirus outbreak – which the mainstream media is now declaring as close to a pandemic – has aligned with a dramatic resurgence in the metals, especially around mid-February. That was when the outbreak accelerated in both infection cases and death rates.
Traditionally, gold – as well as silver – represented safe-haven assets. Even in modern times, physical precious metals acted as a hedge against the fiat currency system. In other words, precious metals move on fear and there’s a lot of that going on.
While I’m not trying to sound the alarm like a Chicken Little, I think vigilance is in order. At time of writing, more than 78,000 people have been infected, with over 2,400 dead. Given the present rate of infection, this number is guaranteed to jump higher.
Moreover, Italy has announced more than 150 coronavirus cases. This is the largest outbreak outside of Asia. Again, with what we’ve seen in China, we can expect the outbreak to accelerate.
Just Buy Gold
I’m not suggesting that people mortgage their entire lives to get into precious metals. Certainly, this outbreak doesn’t call for abandoning principled investment strategies, such as diversification. But a black swan event such as this requires some response. In this case, I like the idea of having at least measured protection in gold (and silver).
Here’s the reality: at this juncture, the global economy will surely falter. Any notion that the U.S. will somehow rise to new heights while everyone else crumbles is wishful thinking. For a country that can’t maintain its infrastructure – let alone feed the homeless or provide decent medical care for its citizenry – it has no room to believe otherwise.
As well, the coronavirus will require massive, continual investments, not just for addressing the disease but containing its spread. Therefore, government resources that would have been dedicated to productive, accretive pursuits will now be forcibly redirected to damage mitigation. Obviously, that’s net negative to the economy.
Finally, we can see a ripple effect through lost opportunities and mass-scale layoffs. Gold won’t protect you from everything. However, when central banks start flooding the system with new currency, you’ll be glad you had something to hold onto.