The last Quantitative Easing (QE) started at the end of the subprime crisis in December 2009. The value of Gold was at the bottom during this period (November 2009). However, it grew by 250% and peaked in 2011 because of the process of money printing.

More money has been printed during this QE to mitigate effects of the possible economic recession during the Covid-19 situation. In view of this, Gold, a safe-haven[1] asset, could see a larger increase in price.

Cash vs Gold

A primary factor affecting Gold price is the real interest rate: the actual interest rate less inflation. The real interest rate also affects Gold’s competing asset: Cash.

However, the effects of inflation on the two assets are inversely related.

When the interest rate is high, the opportunity cost of holding Gold is high. This is because Cash deposited in the banks has an interest pay out while Gold does not. Hence, if the interest rate is 5% to 10%, the return from Cash deposits will be high.

Gold hedging against inflation

Gold is a form of currency with limited supply when compared to fiat currency[2] that the government can print at will. When money is printed, inflation is expected to rapidly increase. Hence, people buy into Gold during this period as it can hedge against inflation.

However, in the event of a deflation, Gold might not do well.

Buying Gold during Covid-19

At the current juncture, it is advisable to hold onto Gold as interest rates are already at their lowest[3]. Furthermore, it is a safe-haven asset.

As the situation worsens and more money is printed, there will be a fear of inflation. Hence, Gold could be used as a hedge against this inflation.

Balancing our investment portfolios

Balance is needed in our investment portfolios.

We can start by buying into Structural Growth companies while also including some Mature and Stable companies to give us a dividend yield. Lastly, we should also include some Gold and Cash. During this situation, 15% or 20% of Gold in the portfolio would be a wise allocation.

We should not sell off all our Gold in the event of a crisis. Instead, we should keep some Gold and diversify our portfolios. Fixating on investing in a single equity will reduce our chances of recovering from a catastrophic situation. As such, we should diversify to adapt to economic changes.


If you have any questions about your personal investment portfolio or want to learn how to better reap the opportunity you are now having, feel free to reach me via heb@thegreyrhino.sg or 8221 1200.

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[1] A safe-haven asset is a financial instrument that is expected to retain, or even gain value in the event of an economic downturn. (https://www.ig.com/sg/trading-strategies/what-are-safe-haven-assets-and-how-do-you-trade-them–181031)

[2] Fiat currency is the government-issued currency with value that is backed by the government.

[3] The recent QE by the US FED on 15 March 2020 has caused the interest rates to be slashed to nearly 0%.

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