Many experts are speculating what the after-effects of COVID-19 will be on the economy. This is the first major crisis that has occupied the minds of business and political leaders in a very long time. As a result, we can use this event to craft a response to future crises that will impact financial markets.
The United Nations’ COVID-19 response team recently spoke about post-pandemic recovery efforts and how governments should use this opportunity to build societies that are more sustainable, resilient, and inclusive than before.
A similar sentiment was uttered after the Global Financial Crisis of 2008-2009. Financial experts spoke about the need to change our approach to market risk and focus on the long term in a more interconnected world. However, this approach was soon forgotten and the post Global Financial Crisis market conditions began to resemble the pre-crisis market ones.
This is important because the World Gold Council had touted investing in gold as a solution for protecting portfolios during times of crisis prior to the 2008-2009 crisis.
Gold’s performance during the financial crisis was noteworthy because it resulted in a rapid shift in the structure of gold demand. The buyers who embraced gold during this period have continued to help the gold market grow to this day.
So let’s look at the impact of investing in gold in the future.
1. Following the science
Before COVID-19 disrupted the markets, another global crisis was (and still is) looming above us. Climate change is still occurring, and will play a key role in influencing markets and investment decisions in the future.
Many countries are playing their part in reducing their overall carbon footprint and slowing down the rate of global warming. Societies across the globe are attempting to phase out the use of products whose production creates large carbon footprints. However, it is believed that gold production has a much smaller carbon footprint compared to other activities, such as coal production and steel production.
This means gold production and investment may continue into the future unabated.
2. Seizing the opportunity
The spread of COVID-19 demonstrated how quickly governments, businesses, and individuals were able to adapt to new conditions. Prior to this crisis, many would have doubted that such significant changes could be implemented on such short notice.
This gives confidence to the notion that we can adapt our activities to align with objectives from the Paris agreement. In fact, the UN Special Envoy for Climate Action and Finance is encouraging investors to seize this opportunity to shift to a low-carbon future in the wake of the COVID-19 pandemic.
3. Changing our approach to risk
The COVID-19 pandemic may have provided investors the shock they needed to reconsider their short-term approach to risk. The UN Global Compact has mentioned that short-term investment markets are preventing companies from adopting sustainability in their strategic planning and capital investment decisions. So investors should start focusing on the long-run after this pandemic is through.
4. Use gold as insurance
If investors have learned anything during this pandemic, it’s that the need for insurance against global crises is crucial. Many surveys have found that gold remains resilient and reliable during troubling times. As a result, gold is likely to play a larger role in protecting our investments during such crises.