OPINION: Gold in a time of crisis – our safe haven

“Gold is a way of going long on fear”  – Warren Buffet

THE CORONAVIRUS pandemic has seen a global health crisis turn into an economic one. It remains uncertain as to when the world will recover from either of these. The past century has shown us that the monetary system tends to change about every thirty years.

Prior to 1914, the monetary system was based on the gold standard. Thereafter, 1945 saw the Bretton Woods system. Within the Bretton Woods system, the USD became the world’s reserve currency. In today’s terms, we have a monetary system older than 50 years – asking for a change. Will the change once again involve gold?

Gold is usually priced in dollars and tends to move in the opposite direction to the dollar. This is due to the fact that when the USD gains, it takes fewer dollars to purchase an ounce of gold. Furthermore, gold is considered to be a good hedge against the risk of inflation since the increasing costs of goods and services tend to erode the value of the dollar.

During and after the financial crisis of 2008, gold prices rose by more than 150%, from $750 per ounce in 2008 to $1 900 per ounce in 2011. These prices occurred within market uncertainty and low interest rates. As such, it is generally stated that the best times to own gold is during macroeconomic uncertainty and financial contagion.