How Does COVID-19 Impact Gold Prices?

During periods of crisis, gold has proven to be a time-honored safe-haven asset. Scarcity and built-in utility have made the yellow metal a sought after commodity throughout recorded human history. Whether in physical or paper form, gold bullion is the world's go to financial hedge against uncertainty.

Gold's validity as a financial safe-haven underwent a formidable test during the novel coronavirus (COVID-19) pandemic of 2020. Traders, investors, central banks and individuals took an active stance toward bullion on a global scale. The results were consistent pricing volatility and confirmation of gold's undeniable intrinsic value. As the international economic system ground to a halt, gold experienced extreme market turbulence on its way to near all-time high valuations.

Onset Of COVID-19

The novel coronavirus contagion originated in late-2019 on mainland China. Traced to a food market in the industrial city of Wuhan, the virus demonstrated a remarkable ability to spread quickly throughout heterogeneous populations. Upon the coronavirus becoming a global concern, the World Health Organisation (WHO) officially named the disease COVID-19 in mid-February.[1] Shortly thereafter, on 11 March 2020[2], the outbreak rose to pandemic status and spiked uncertainty around the globe.

Immediate steps were taken to stop the spread of COVID-19, including sweeping quarantines, travel bans and lockdowns. As a result, the world's economy was essentially stopped and market participants began preparing for the worst. Gold values were impacted greatly as the capital markets violently reacted to the unprecedented situation.

Conventional wisdom states that during times of panic, gold appreciates in value. This was not the case in March 2020, as traders and investors clamored for a port in the storm. Below is a look at how spot gold (XAU/USD) fared during the early stages of COVID-19.[3]

2-6 March 2020

During the initial days of March, global markets began to show signs of strain. In response to growing COVID-19 economic fears, the United States Federal Reserve (FED) imposed a surprise 0.5% cut to the Federal Funds Target Rate.[4] The move did little to stem the bearish market sentiment, but it did spike participation in bullion. For the trading week of 2-6 March, the XAU/USD gained US$87.52 (+5.52%).

9-13 March 2020

Monday, 9 March brought the biggest stock market crash since the 2008 global financial crisis. Leading U.S. equities indices the Dow Jones Industrial Average (DJIA), Standard & Poor's 500 (S&P 500) and NASDAQ Composite all fell by more than 7.25%.[5] Spot gold followed suit, losingUS$144.57 (-8.64%) by Friday, 13 March's closing bell.

16-20 March 2020

On Sunday, 15 March, the FED held an emergency meeting to address the evolving market turmoil. At the meeting, interest rates were cut to near zero and at least US$700 billion in liquidity injections were pledged.[6] The XAU/USD reacted negatively to the news, falling by US$30.39 per ounce (-1.99%) for the week.

23-27 March 2020

On 19 March, the U.S. Congress introduced the CARES Act, a massive US$2.0 trillion stimulus package.[7] The leading American indices rallied on the news, as illustrated by a 16.93% gain in the US30 (DJIA) CFD. Gold bullion prices also reacted positively, posting a US$128.63 (+8.58%) gain for the week.

March 2020 Volatility Recap

Chaotic is the best way to describe gold's behaviour during the COVID-19 market panic of March 2020. Values frequently spiked and plunged as the situation evolved, often in a counterintuitive fashion. A traditional view of the market prompted most analysts to take a bullish short-term view of gold; however, this idea proved incorrect.

For the month of March, spot gold closed at US$1577.10, modestly down by US$9.44 (-0.60%). So, why did bullion perform so poorly as a safe-haven during the initial stages of the COVID-19 panic? The answer is a phenomenon known as capitulation.

In the capital markets, capitulation means to sell all assets and move holdings exclusively to cash. Amid the COVID-19 panic of March 2020, market participants liquidated assets and stockpiled U.S. dollars. This led to periodic spikes in the USD Index, which closed the month of March up by 0.60%.[8] However, given that gold held relatively strong against the USD and mass capitulation, it remained a viable safe-haven asset.

Economic Damage, Restart

When compared to March 2020, April 2020 was relatively tame for the capital markets. Risk assets began a broad-based recovery, as equities traders and investors regained a portion of their appetites. Aside from unprecedented tumult hitting the global oil complex, April proved to be a much better month than March.

Nonetheless, questions regarding a potential economic restart plagued overall market sentiment. Citizen quarantines and business shutdowns had been in place for extended periods of time, so how was life to resume post-COVID-19? And, how bad was the economic damage stemming from the lockdowns?

Ominous Projections

On the economic front, most analysts predicted a steep recession with a chance of depression following COVID-19. Experts from investment banking giant Goldman Sachs issued mid-April projections for Q2 U.S. GDP to decline 11% and American unemployment to hit 15%.[9] The ominous tone wasn't relegated to the U.S., as the International Monetary Fund (IMF) estimated that the global economy was to contract by 3% for 2020.[10]

Although a recovery in the financial markets appeared to be underway with the passing of March, investor angst remained at epic levels. With the initial COVID-19 panic still fresh in everyone's minds and the world still largely on lockdown, bullion trended higher during April. For the month of April, XAU/USD gained US$109.51 (+6.94%), establishing a robust monthly close of US$1686.61.[3] As high unemployment and economic strife dominated market sentiment, bullion became an extremely attractive holding.

Economic Restart

Although the COVID-19 pandemic proved to be a major humanitarian crisis, the economic impacts were also severe. This fact was not lost on institutional investors, as they hoarded physical bullion throughout Q1 2020. From January to March, European and U.S. gold-based exchange-traded funds (ETFs) boosted stores by 298 tonnes, valued at upwards of US$16 billion.[11]

The attitude of gold bulls didn't appear to change as the global economy began reopening for business. Safety challenges, government restrictions and fears over a "second-wave" of COVID-19 infections posed many questions to the markets. Was there to be a repeat of March's panic? Were more lockdowns imminent? Could a second-wave bring on another Great Depression?

As the world returned to business-as-usual, gold once again performed well as a safe-haven asset. The XAU/USD rallied by US$42.99 (+2.55%) for May, to a near-record monthly close of US$1729.61.[3] Although positive sentiment was creeping back into the world's financial markets, both retail and institutional investors turned to gold as insulation against the unknown.


Throughout the early stages of the COVID-19 pandemic, gold was a staple of global finance. Prices ebbed and flowed, with economic and social chaos spiking participation. Institutions around the world stockpiled bullion as an insurance policy against the unknown. Accordingly, the yellow metal performed well as a financial safe-haven.

Ultimately, conventional wisdom proved correct―gold's value appreciated during a period of extreme uncertainty. From 1 March 2020 to 29 May 2020, XAU/USD prices rallied by US$143.07 (+9.0%)[3], outperforming many of the world's premier asset classes. If nothing else, the COVID-19 pandemic sparked participation, market turbulence and eventually solid gains in gold pricing.


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