Value of Gold Appreciates as the Stock Market Depreciates

In past times, Gold was used as a benchmark to determine the value of commodities. With the rise of other tradable commodities and securities, the attention of investors has partially moved away from gold to other commodities.  A number of factors can be considered when it comes to determining the value or prices of gold—factors such as demand, supply, and customer behavior. 

Determiners of the Value of Gold

The major determiner of the appreciation value of gold is inflation. Claude B. Erb, economist of the National Bureau of Economic Research and Campbell Harvey, professor at Faqua School of Business Duke University have both closely studied the value of gold, putting many factors into consideration. The results of their research showed that gold doesn’t necessarily correlate to inflation and it is not necessarily a better alternative for investors during inflation. 

However, many investors still consider gold as an inflation hedge in case of a market fall or financial crisis. It is also a great way of diversifying a portfolio since it tends to perform well during economic conditions. During the economic crisis, especially during the 2008 financial crisis, many investors shifted focus to gold. In the last financial crisis, the value of gold appreciated to almost $1000 per ounce in early 2008 and later fell to $800 per ounce only to bounce back as the stock market bottomed out. Since then, the value of gold has been on the increase, hitting a peak of $1,921 per ounce in 2011. It has since experienced a few ups and downs, however, still hit $1,575 in early 2020.

Only a few days ago, gold futures were higher in relation to the decline in stock value and a hitch in government bond yields. This was expected as gold tends to thrive well in the event of an economic crisis—in this case, caused by the coronavirus outbreak. Stephen Innes, chief market strategist at AxiCorp, wrote in a research note “Gold looks like one of the most attractive assets in this global environment. With US rates likely heading towards the zero lower bound.” He further wrote, “This should mean that both retail and institutional investors, portfolio allocations in gold will rise exponentially.” Confirming Innes’ theory, Bullion is already securing bids as California announced a state of emergency.

As of Wednesday, the prices of Gold for April delivery GCJ20, +0.75% on Comex were up $9.30, or 0.6% per ounce. While May silver SIK, +0.45%, were up by 0.6% to trade at $17.350 per ounce.