What happened and why Warren Buffett famously labelled Gold (+2.72%) a "useless" metal, well now the world's most-famed investor owns a slice of the precious-metal-pie, along with a large number of high-profile investors. 🥇 Gold rush... Investors have been piling into Gold during the pandemic. At just over $1,900 an ounce, the price of the metal has nearly doubled from where it was in 2018. Everyone investor wants a vaccine but gold is the next best thing... The norm... Just like the rest of the stock market, gold wore its fair share bumps and bruises during the march crash but that didn't last long...Ahh, safe haven... Investors quickly remembered gold is a safe-haven asset that can't be devalued or heavily distorted by governments printing money.Stuck... Gold is hard to find and hard to mine. With all the gold in the world expected to fit into a town house... analysts expect the minimal chance of a mega-spike in supply, means the value 'should' hold firm-ish. Forget 2008... This gold rush has blown the previous financial crisis out of the water. Here's what is making the 2020 gold rush, look like a modern-day 19th century Californian scramble... Bond yields... With bond yields (the interest paid to the investor) falling and a jump in the number of negative-yielding bonds, Gold has gained a shine with investors.Because Gold doesn't yield... With low and negative yields in the market, there is no lost opportunity (opportunity cost) from holding gold... AKA no FOMO.More places to flex... The rise in the gold-backed ETF (Exchange-traded funds) market - these are funds that represent the price of gold - has meant investors can gain exposure to gold, as easy as buying a normal stock. 💰 But the gold rush is an investor thing... while investors have charged towards gold likes magpies to hedge their bets against the stock market volatility, the actual consumers have kept their powder dry. The biggest consumers in the world - China, India (and central banks) - have hardly been shopping for gold. The pandemic has left jewellery shops (central banks don't tend to shop here) shut and gold may just be losing its shine in consumers eyes. | The Takeaway Bluffett... Warren Buffett hasn't pulled any punches when it comes to gold. The 'sage of Omaha' mocked people who invested in gold, calling it a useless metal that “gets dug out of the ground in Africa, or someplace”. But this year, Buffett joined investors - including the world’s largest hedge fund Bridgewater Associates - in buying into the latest gold rush, driving prices to a record high. The 60:40 rule... That's 60% in more risky investments (stocks) and 40% in lower risk investments (AKA bonds), but this rule has never looked so dated. Investors that have held gold as a hedge for years, have taken the edge off a nasty market correction and this stress-testing volatility. With gold now at all time highs, consumers going gold-shy and central banks plowing money to resuscitate economies, another surge in the price of gold would have to keep coming from investors.
