Cryptocurrency purveyors called Bitcoin “digital gold,” but gold itself is getting its own nicknames in this coronavirus-laden market landscape. Goldman Sachs dubbed gold the “currency of last resort” at a time when the markets are bracing themselves for a massive government intervention to curb the effects of the coronavirus.
“We have long argued that gold is the currency of last resort, acting as a hedge against currency debasement when policymakers act to accommodate shocks such as the one being experienced now,” said analysts at Goldman Sachs led by Jeffrey Currie.
While gold prices have slipped recently, Goldman Sachs is maintaining its $1,800 per ounce price target, especially with the central bank aggressively purchasing Treasury notes and mortgage-backed securities to shore up the markets. The reason for the bullishness hearkens back to 2008 when the Fed stepped in during the financial crisis—gold also saw some initial weakness before rallying.
“We are beginning to see a similar pattern emerge as gold prices stabilized over the past week and rallied [Monday] as the Fed introduced new liquidity injection facilities with this morning’s announcement,” the analysts said.
Other analysts are even more optimistic than Goldman Sachs.
It has not been our practice to forecast gold price,” wrote B. Riley FBR’s analysts in a Kitco report. “[But] due to our conviction in rising gold prices, we are meaningfully raising our gold price deck … to $2,500/oz in 3Q20 … and we feel compelled to align our 12-month price targets to this view.”
Gold Price in US Dollars data by YCharts
Getting Gold Exposure via ETFs
Precious metals like gold offer investors an alternative to diversify their holdings. Like other commodities, gold will march to the beat of its own drum compared to the broader market.
Due to this negative correlation, large downturns in the broad market may not affect commodities. By investing in gold ETFs versus physical gold, investors can also reap the benefits of an ETF like its tax efficiency, as liquidity to buy or sell quickly in the markets.
Gold ETFs can be bought and sold freely via an exchange when compared to physical gold. As such, investors can utilize the hedging properties of gold without having to endure the costs of actually owning and storing the asset like they would with physical gold.
Investors looking to get gold exposure can look at funds like SPDR Gold Shares (NYSEArca: GLD) and the SPDR Gold MiniShares (NYSEArca: GLDM). Precious metals like gold offer investors an alternative to diversify their holdings, and like other commodities, gold will march to the beat of its own drum compared to the broader market.
Traders looking for leverage can use funds like the Direxion Daily Gold Miners Bull 3X ETF (NYSEArca: NUGT), VanEck Vectors Gold Miners (NYSEArca: GDX) and the Direxion Daily Jr Gold Miners Bull 3X ETF (NYSEArca: JNUG).
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