Gold has been in a primary bull market since August 2018. The gold price has gone from trough ($1,167 ) to peak ($1,788) it climbed $600 an ounce, a gain of more than fifty percent in less than two years.
In March 2020, as The Wall Street Journal summarized the bad news of the pandemic’s impact on stocks with a headline that read, “The Week that Wiped $3.6 Trillion Off the Stock Market,” gold found itself caught in the crossfire.
As you can see in the chart below, the gold price surged above $1,700 as the news of the pandemic spread. Then, in mid-March, it had a quick sell-off before snapping back just as quickly.
This was familiar action to veteran gold investors. During a panic (caused by news of the current pandemic) such as Wall Street was experiencing, traders in markets with perfectly sound economic fundamentals can sometimes liquidate those positions to meet margin calls in collapsing markets.
This reflects one of golds strengths: it is ultra-liquidity even in the most stressful conditions. When stock markets crash, when companies fail, when bonds are suspect, gold’s virtues shine forth. In the general carnage of the stock market, large investors and funds scrambling for cash to meet margin calls and stay afloat were able to raise critical cash with gold, the most liquid commodity of all.
Once the margin calls were met they could re-establish their gold positions.
To repeat, this kind of action has been on display before. The precedent of the last financial crisis is instructive. The gold price fell hard – but only briefly – in the fall of 2008 during the stock market carnage of the mortgage meltdown.