“Germans buy gold because of low interest rates”

When the corona virus crisis began in late February / early March and the stock markets collapsed, the gold price in euros plummeted by around ten percent. What has happened there?

Gold, like other asset classes, went through a phase of liquidation that also affected long-term US government bonds. For example, many stock purchases were financed by loans and investors had to sell gold that proved to be liquid to meet their obligations. We have seen this behavior of investors again and again in the past, even if the current environment is largely unprecedented. But also in the financial crisis of 2008/2009 there were phases of a falling gold price, while stocks were liquidated.

 

What makes the current environment so unprecedented?

Monetary policy in particular. A high level of uncertainty and risk have always been typical drivers of the gold price. The current environment, particularly due to its uniqueness, is no exception. Added to this are the low opportunity costs due to the coordinated actions of central banks around the world. Not only has the Federal Reserve cut interest rates, monetary policy has eased around the world. However, when interest rates are very low, you lose a little of the income from investing in interest-free gold, which is called low opportunity costs.