A strong year in 2020, but did it reward investors following a challenging decade?
Gold in 2021
Gold has captivated people for thousands of years and even one of the better James Bond films was based around it. It continues to interest a select number of investors who often view it as a hedge against the rest of their portfolio and inflation, as in difficult times this comparatively rare and malleable metal tends to shine that much brighter.
Older investors will generally associate South Africa with gold production, but these days the biggest producers are now China, Russia, Australia and the U.S.
The attractions for gold bugs were once again in place over 2020, which included a weaker U.S dollar and of course the Covid-19 pandemic, which created a level of uncertainty for the global economy and its recovery.
Investors in gold, which had performed well from the start of the new century, but had underperformed against equity markets from 2011 to 2018 were rewarded with a 24% rise over 2020. It hit a high in August of $2,069.5 before falling back a little, as investors looked ahead to the day when a vaccine would provide a defence against Covid and boost the hopes for a quicker economic recovery.
More recently the price has been volatile as the mutating strain of the disease has once again created nervousness in Europe. Although long-term followers will be aware of the effects of geo-political uncertainty and disasters such as pandemics, it is the relationship with the U.S. dollar which is often the most commented upon.
Gold is traded around the globe in U.S dollars and a weaker currency makes it cheaper for foreign investors to buy. There is also the fact that with interest rates hovering close to being negative, it further helps investors, looking for alternative assets, to cast their eyes in the direction of gold, most usually via a specialist fund or an exchange traded fund.
If you add in other potential reasons to consider gold, such as supply constraints and the fact that although it can be volatile, over the long-term it holds its value better and is not as volatile as some other commodities. The historical and cultural influence, with it being used for jewellery and gifts is another factor and with people in emerging markets growing wealthier, that demand has the potential to increase.
Gold may not interest every investor but there is every reason to believe that it will hold a place for future investors to consider.
All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.