Gold firm and on the rise amid pandemic

In the midst of the global economic crisis, gold is emerging as one of the assets safe from the “coronacrash”.

In fact, it is one of the preferred havens of investors from almost all over the world in contexts of uncertainty.

“For Americans, gold is a long-term haven, as is the dollar for Argentines,” says Matías Daghero, producer agent and finance teacher. For locals, it’s also a way to dollarize savings.

With a value of more than $ 1,700 an ounce, it is at its highest levels in the last seven and a half years and has gained 10 percent so far in 2020.

Anyway, Rubén Ullúa, technical market analyst, warns that volatility was important in these months and that this can scare a very conservative investor. Gold also crashed worldwide in March, but has since risen.

Reflection of the crisis

“Gold is in demand due to the large international issue and uncertainty,” explains Agustín Capra, advisor to Petrini Valores.

“Furthermore, expansionary monetary policies are pouring a lot of money and, if that is not sterilized after the pandemic, it will generate inflation in dollars,” he adds.

At the moment, the dollar continues to strengthen because not only the United States issues a lot, but also other central banks, although this is not likely to continue much longer.

“The normal pattern has not been a strengthened dollar and also a strengthened gold. Gold is often the counterpart of the dollar, ”says Ullúa. Inflation in dollars would be reflected in an increase in the price of real assets such as raw materials.

Ullúa, however, puts a question mark in the evolution of the price: “It probably won’t go up much. There is a flow to this asset due to uncertainty, but once this happens, investors will go for a return, not a refuge. ”

For Capra, gold serves to be positioned in the medium term and protect capital. “It will generate a high return if uncertainty remains or the market collapses. In addition to the pandemic and the issue, there is the tension between the United States and China. “

Daghero adds: “I see it as a conservative investment to safeguard value, not to earn money. For a very conservative, it would have no more than 30 percent of the portfolio. For a traditional Argentine saver, it would not exceed 10 percent. ”

How to buy

Analysts agree that it is not advisable to buy coins, bars or “physical” metal, the traditional way in which people think when investing in gold. This modality requires storage, it is difficult to fractionate, it is not liquid and it has a high spread (difference) between buying and selling.

Instead, the market offers ways to position itself through financial assets and with relatively low amounts.

“Like all commodity, listed on the market spot (cash) or futures. The latter has greater volume, “says Ullúa.

The easiest way is to invest in funds that replicate the international price, denominated exchange traded fund (ETF, for its acronym in English) which in the case of gold has the name GLD.

“It can be done with the local stockbroker,” says Capra. In addition to a client account in the country, you have to make dollars through the cash settlement and so you can operate.

ETFs are efficient because, being passive, they have low administration costs. Capra cautions that a financial advisor should be consulted because ETFs in the United States and in Europe have different tax implications to consider.

Another way is to buy shares of mining companies (or funds that invest in them). From Argentina you can acquire the so-called Cedear, foreign shares that are listed in the country.

“They have the advantage that they can be bought in Argentine pesos (they allow dollarization) and they do not need very large amounts to invest, but they are shares and have the volatility of a company, in addition to gold,” emphasizes Daghero.

He adds that “the two most important mining companies had a huge increase in national currency this year: Barrick Gold rose 140 percent in pesos and Yamana Gold, 125 percent.”

The latter is the Canadian who partnered with Eduardo Elsztain to exploit a mine in Chubut. The Irsa headline said this week that he invests in gold because “it is the only currency that cannot be printed.”

Another option is in the Rofex futures market and it is fully operated in pesos. However, Capra cautions that it is a more sophisticated placement for people because it requires professional management.