- The Great Lockdown, may in many ways, be similar to the Great Depression
- Recouping from the financial lows may be a matter of time and patience
- As GDPs plummet and assets touch rock bottom, the world of gold reigns once more
- Financial security is important, and gold is what you should fall back on
The Great Depression
The Great Depression was a time of widespread distress for the industrialized, western world. The epoch of 1929 through 1939 was extensive and acute. The industrialized world was in deep turmoil, unsure of what is to follow and frenzied by the accelerated and dynamic economic changes experienced. Stemming from the United States, the Great Depression had its most severe impact on all countries, greatest to least, on the planet. The effects of the Great Depression stayed with many for a long time, trickling down to the poorest nations and humans on earth. From critical unemployment and deflation to sharp drops in GDP and world output, the world had almost experienced everything. The war was yet to follow.
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What Caused this ‘Great Depression’?
Numerous factors may hint to the coming of the Great Depression, but the gold standard is prominently remembered, till date, as one of the critical causes of the depression. The gold standard was a regulatory system, whereby a country’s currency, i.e., paper money was tied to a specific value of gold. Money in various forms, such as banknotes and bank deposits, were freely converted to gold at that particular value.
However, countries on the gold standard were not able to mint money to increase the amount of paper money in circulation, without having increased their gold reserves. Here is where the problem began! Most countries were on the gold standard between the period 1800-1930s. But the effects of World War I, which left the European countries grappling towards a stable economy, the stock market crash, and a consequent run on bank failures, and crippling levels of deflation only made everyone opt-out of the gold standard. Great Britain was the first country to abandon the gold standard in 1931; other countries followed suit. The United States, however, did not drop out of the system until two years later, only worsening the pain of the Great Depression.
Will the’ Great Lockdown’ Give Way to a ‘Great Depression’?
The world has changed radically from the time of the Great Depression in 1929 to that of the Great Lockdown in 2020. During the Great Depression, people were scrambling to their feet trying to pay off debts and struggling to survive on the little they had – doing all this after just having fought World War I, preparing for World War II. Today, the Great Lockdown is no more than a war zone. Doctors and frontline workers continue to play soldiers in their hospitals, hurting as they see patients die with no loved ones around. Are their hazmat suits enough of armor as they try to keep the virus at bay? As the world sees countless lose their lives against the battle with Covid, world economies experience a range of crises. Having to focus on medical, financial, and economical needs, countries are in a complicated situation where they are struggling to balance their resources to make ends meet. Economists and policymakers, worldwide, are providing relentless support to businesses, financial markets, and households in hopes to sustain economies from any further damage. However, what shape economies take once we emerge from this pandemic, or what financial circumstances we fall into are hard to say, as of yet.
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Assuming that the spread of the pandemic comes to a halt, and lockdown is eased for many countries by the second half of the year, the International Monetary Fund (IMF) predicts a 3% decrease in world economic growth by the end of 2020. This decrease, by far, makes the Great Lockdown a hard hit, after the Great Depression. If, however, the pandemic fades away by the second half of 2020, and policymakers move swiftly into action, there is hope for the world economy. Making simultaneous changes to fiscal and monetary policies while continuing to uplift financial markets, maintaining levels of employment, avoiding pervasive bankruptcies, and decreasing the strain on resources, policymakers will be burdened with much. However, the IMF predicts that this will bring world economic growth, which is predicted to ricochet to 5.8% by the year 2021. It is important to remember, nevertheless, that the year 2021 will not bring complete recovery from pandemic losses.
According to the IMF, the year 2020 and 2021 will bring about a nine trillion dollars aggregated loss to the world GDP from the pandemic crisis. The graph below shows the GDP loss shaded in red.
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How to Secure Yourself During the Pandemic
It is vital for each of us to pay heed to lockdown restrictions and SOPs in place during this pandemic. Washing our hands, wearing our masks and gloves, and maintaining social distancing are all prevalent concepts in this day and age. But securing ourselves medically is not the only solution. It is essential to be financially secure, as well. For generations, gold has played its part as a safe-haven in times of distress. It acts as an inflation hedge, providing significant support to an otherwise risky portfolio. As of now, gold sits in a moderately bullish market, breaking beyond the $1,700 barrier, and toward unprecedented highs in the year to follow. Gold continues to remain invaluable to investors, especially during such times, and it is prudence, therefore, to allocate 5%-15% of your portfolio to precious metals such as gold or silver.
How to Invest in Gold
To invest in gold, you can buy gold coins, gold bullion, gold futures options, gold funds, or even gold mining stocks. These can be purchased physically or electronically, depending on the commodity. The best way to buy gold, however, is online. Today, there are many facilities which store your purchased gold in secure, private storage vaults. The best way to buy gold online is to make the purchase and save it under your name, in a personal vault. Now you can continue to, conveniently, add gold assets to your vault with only a few clicks. When purchasing gold, however, it is crucial to keep a check for the authenticity of the dealer and purity of the gold. If not, you may be duped! Banks, too, sell gold in its various forms. Many banks in the US sell gold coins to interested investors.
Knowing one’s situation and not paying heed is a dreadful mistake one could make. We are all amidst a pandemic crisis, and if we do not act in time, it may just be too late. Securing our health is essential, but it is also necessary to not get too lost in the fog of the pandemic, leaving our financials to be ruined. Investing in gold and securing our futures and the future’s of our children should be our primary concern.