"Looking ahead, expectations for a faster recovery (V-shaped) from Covid-19 are shifting towards slower recovery (U-shaped), or potential setbacks from additional waves of infections (W-shaped). Regardless of the recovery type, the pandemic will likely have a lasting effect on asset allocation. It will also continue to reinforce the role of gold as a strategic asset," the WGC said.
The report examines how the combination of high-risk, low opportunity cost and positive price momentum looks set to support gold investment and offset weakness in consumption from an economic contraction.
The WGC says gold had a remarkable performance in the first half of 2020, increasing by 16.8% in US-dollar terms and substantially outperforming all other major asset classes. By the end of June, the London Bullion Market Association's PM gold price was trading close to $1770 an ounce, a level not seen since 2012, and gold prices were reaching record or near-record highs in all other major currencies.
"Though equity markets around the world rebounded sharply from their Q1 lows, the high level of uncertainty surrounding the Covid-19 pandemic and the ultra-low interest rate environment supported strong flight-to-quality flows. Like money market and high-quality bond funds, gold benefited from investors' need to reduce risk, with the recognition of gold as a hedge further underscored by the record inflows seen in gold-backed ETFs.
"The pandemic is having a devastating effect on the global economy. The IMF is currently projecting a 4.9% contraction in global growth in 2020, with high levels of unemployment and wealth destruction.
"There is a growing consensus that a swift V-shaped recovery is morphing into a slower U-shape recovery or, more likely, the possibility that a recovery in H2 is short lived as recurring waves of infections set the global economy back, resulting in W-shaped recovery.
"For investors, this is not only keeping uncertainty levels high, but may also have a long-lasting impact on their portfolio performance. Against this backdrop, we believe that gold can be a valuable asset: it can help investors diversify risks and may positively contribute to improving risk-adjusted returns," the WGC said.
The full report may be found at this address: https://bit.ly/3gWX9DS
