How Will Gold Prices Behave During An Economic Crisis?
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Although the U.S. economic outlook looks good, the COVID-19 pandemic is predicted to have a negative impact on the country’s economic growth.
International trade will suffer, with the U.S. already imposing a travel ban on European countries.
And with the dollar rising over major currencies, investors are panicking, and banks are doing their best to increase its liquidity—all in vain.
Precious metals like gold have been the go-to standard during an economic crisis. During the Great Depression, the U.S. introduced the Gold Standard to curb the effects of crisis, but ended up with the opposite effects.
This makes one wonder: how will gold prices behave during the pandemic in 2020?
Here are a few predictions you should know about:
Gold Still Has A Good Liquidity Rate
During periods of inflation,gold has always been the go-to precious metal.
This is because gold has a high liquidity rate compared to other types of precious metals. If you take a look at the 1914 liquidity crisis, countries that eliminated the gold standard suffered greatly.
It goes to show that gold as a currency is stable because the prices are set by the National Treasury.
Gold is No Longer Stable When Disjointed with Other Currencies
When currencies and gold become disjointed, they leave a negative impact on the economy.
If you recall the hyperinflation crisis of Weimar, Germany, you’ll rememberthat gold prices increased at a fast rate and anyone who owned gold bullions, soon found themselves to be financially secure.
What we can learn from this is that gold isn’t there to help investors become wealthy, but to protect their investment power. After some time, you can convert gold into cash when the demand for the precious metal increases.
Government Interference Will Be a Problem
During the Great Depression, the U.S. government outlawed the private ownership of gold bullions and bars, and set them at a price of $35 per ounce. While this may not seem like a large amount in 2020, during the Depression, it was.
President Roosevelt made this move because investors were aggressively purchasing gold during the crisis.
What Can We Learn From This?
While gold offers great value during inflation and economic crisis, investing during an unstable economy isn’t a good idea.
It’s better to invest in gold bullions and bars before the economy worsens. Doing so can help investors maintain their wealth and financial stability.