Unlike paper currency or other assets, gold has managed to maintain its value through the years, preserving the investors’ wealth, especially in times of fear in the market. Although many investors value gold as an important portfolio asset, the recent stock market slides caused by the coronavirus outbreak have additionally raised interest in the precious metal, encouraged by the impressive gold performance in 2019.
According to data gathered by Finanso.se, the rate of return for gold investments hit 237.75% at the end of last year, the highest value in twenty years.
The price of gold jumped 5.5 times in the last 20-years
The average gold value tends to increase during a recession, making it an attractive investment in uncertain times. In 2000 the price of gold was at its lowest point since 1990, with a troy ounce of gold costing $274.5, revealed the Statista and World Gold Council data. Since then, gold prices have been rising. After the 2008 economic crisis, the price of gold rose at higher rates than ever before as the market began seeing gold as a good investment.
Statistics show that at the end of 2019, a troy ounce of gold hit $1,514.75 or 5.5 times more than the 2000 figures. The price of gold continued to grow in the first months of 2020, reaching the highest value of $1,653.75 on March 9th. Although the third week of March witnessed a fall with the price going down to $1,474.25, the end of the month brought a recovery with the value going above $1,600 per troy ounce of gold.
In 2002, the rate of return of gold as an investment was 25.6%. Over the next decade, the investment return rate went from the lowest of 4.3% in 2008 to the highest at 31.9% in 2017. Between 2013 and 2015, the gold investment return rate hit its deepest point in the last 20 years, reaching -27.3%.
However, the next two years brought a recovery with the return rate growing to 12.7% in 2017. Although 2018 was closed with a minus sign, by the end of 2019, the return rate jumped by 234.85%.
Saving investments in times of volatility
During periods of risk, investors look for high-quality, liquid assets that can save their capital and minimize losses. History has shown many times that gold is seen as a profitable investment in such times of uncertainty because it works as a good store of value against a declining currency.
In times of economic growth, it is positively related to stocks just like other commodities. However, unlike other assets, gold protects the investors against tail risk during risk-off periods.
The economic effects of the September 11th attacks caused global stock markets to drop sharply. The statistics show that the CBOE Volatility Index (VIX) which is used to measure the level of risk, fear, or stress in the market when making investment decisions, increased for 16.35 points at that time, while the gold return rate was 5.15%.
During the 2008 recession, VIX hit its highest level ever jumping for 25.92 points. The gold return surged to 47.47% at that time. Europe’s sovereign debt crisis in 2010 and 2011 caused the volatility index to rose for 15.60 points, while the gold return rate amounted to 30.20%. During the 2018 stock market pullback, the VIX increased for 24.07 points, and the gold return rate stood at 6.64%.