Month of Gold: How do investors choose between gold and stocks in a crisis?

We’re entering the sixth month of the pandemic and the road to recovery is proving to be a long one. There have been 10.4 million confirmed cases of COVID-19 and over 500 000 deaths globally.  While most of Australia has the virus under control, a recent report from the Grattan Institute warns it would be a big mistake for Australia to implement austerity just because we’ve largely suppressed COVID-19.
It is interesting that in the modern days of digital money we still, in part, utilise physical commodities. The reason for this is that rare metals such as gold are predictable. Gold holds its value better than something with an assigned value such as paper money, especially in an unstable environment and is often seen as a safe haven during a crisis. There has been a lot of interesting news around gold lately, which is why we have decided to assign July ‘The Month of Gold’. We will focus on gold as a theme during the month and today we want to delve into why gold is seen as a safe haven, and what effect COVID-19 has had on prices.  The uncertainty of the market has driven the price of gold up, a common reaction in a fear-driven market. 
“Concern over the uptick and spread of the virus has been highly supportive of the safe haven asset class, specifically gold,” Reliance Securities said in a report.
The price of gold increased by more than 40% since the final quarter of 2018. It rose to multi-year highs in May, trading above USD1,700 per troy ounce Goldman Sachs has also forecast that gold prices might rise to $2000 an ounce within the next 12 month due to a combination of low interest rates and currency debasement concerns. 
  “As we have argued in the past, gold investment demand tends to grow into the early stage of the economic recovery, driven by continued debasement concerns and lower real rates,” the bank said.  
Gold’s reputation as a ‘crisis commodity’ is in opposition to stocks that are often seen as more risky. 
  “Compared to an investment in stocks, where even the biggest blue chip companies can (and have) failed, an investment in gold often seems less risky,” said Adam Vettese, market analyst at investment platform eToro.
  However that doesn’t mean it’s not possible to invest in stocks during a crisis.    Why gold has outperformed the stock market for 50 years  The S&P 500 is an index that reports the risks and returns of the biggest public companies in the US. Investors use the S&P 500 index as the benchmark to compare all other investments.  For the past 50 years, gold has regularly outperformed the S&P 500. Why? Well, the last half-century has been economically and politically turbulent. Just as we recovered from WWII, we had another spate of wars and political upheavals. We’ve also had a smattering of economic meltdowns, and the cherry on top was the Global Financial Crisis (GFC). The macro climate has created stock market instability. Meanwhile, gold always retains its long term value.    Diversification is worth its weight in gold The global economy is walking on glass right now. But that doesn’t mean you should cash in your stocks, drain your bank account, and flee to the hills with your ingots and baked beans.  Instead, it’s time to mix up the medicine. Portfolio diversity hedges your investments against market foibles. Healthy investment portfolios have a blend of good stocks and some gold.  Ray Dalio, founder of one of the world’s largest hedge funds, agrees that gold is a valuable addition to any investor’s portfolio.   
“I think you have to have a little bit of gold in your portfolio.” Dalio said in January, a sentiment he repeated this May.
  If 50 years of history are anything to go by, investing in gold assets can be a valuable component of a portfolio during tumultuous times.    Past performance is not a reliable indicator of future performance. Sources:

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