This asset is immune the COVID-19 and it could be heading much higher. Here’s why.
There’s been one asset that has been rallying in recent weeks as the rest of the market has been reeling amid increasing fears about the coronavirus outbreak: gold.
And Goldman Sachs said this week that the precious metal is the one asset that’s safe from the COVID-19’s impact on global markets.
“While so much about the current environment remains unclear, there’s one thing that isn’t: gold, which—unlike people and our economies—is immune to the virus,” Goldman’s head of global commodities research, Jeff Currie, said in a note.
The shiny yellow metal is up nearly 8% so far this year, and has been trading around seven-year highs since last month.
While gold is considered a safe haven asset as it tends to retain its value during times of volatility, the asset took a tumble and had its worst week since 2016 last week. The metal has since rebounded, getting a boost this week from the Federal Reserve’s surprise rate cut on Tuesday, and is up 3.3% so far this week.
Still, Currie said gold is the “currency of last resort and avoids the concern that paper currencies could be a medium of transfer for the virus.”
“As a result, gold has outperformed other safe haven assets like the Japanese Yen or Swiss Franc, a trend we see continuing as long as uncertainty around the full impact of COVID-19 remains,” Currie added.
Peter Grosskopf, CEO of Sprott, a Toronto asset manager focused on precious metals, agrees and said this week, “The flows into gold are just getting started. Gold is now being seen as mandatory portfolio insurance and not a fringe asset.”
According to Grosskopf, gold’s ownership among institutional and retail investors remains low with few having his firm’s recommended asset allocation of 5%. “The rally has not attracted retail investors,” he added.
Grosskopf said that gold’s chart pattern points to the metal hitting $2,000 per ounce – 22% higher than where gold is as of this writing.