A Global Analysis of Gold, Cryptocurrency, and Commodities in 2021

Analysis of Gold, Cryptocurrency, and Commodities in 2020

Table of Contents

2020 began with challenges that continue to affect growth and progress at a global level. With the spread of the Covid-19 virus at an alarming rate, various geopolitical issues and economic recessions have affected. Many sectors in most countries. The virus changed millions and brought all major economic activities to a halt. Imposing restrictions to curb the spread of the pandemic.

A quick recap would also take us down significant political development that took place at the international unit. The various tensions among countries, new political policies. And the looming. Health and economic challenges posed a threat to many countries. The global market was in perpetual turbulence.

The pandemic caused all major economic activities to shut down, thus plunging many states into recession. All leading economies are expecting a 7% shrink in their economic growth rate. In this new normal, the gold, commodity, and cryptocurrency market also experienced. The implications of these developments took place within the year. Let’s take a closer look at these events and their impact on these alcoves.

 

Overall Global Framework in 2021

The year began with the advent of coronavirus, infecting millions of people worldwide. While all countries have experienced the impact differently, the result has been the same for almost all. All major monetary organizations, WTO, World Bank, and even the overly optimistic IMF. Predicted the deepest global recession that the world has seen in decades.

In terms of politics and political development, several important decisions have been made. That affects the global market. The year began with the United Kingdoms opting out of the European Union- the infamous Brexit. Moreover, the rising tension between China and the USA escalated into a significant political conflict. Adding to these events, climate change, civil disruption in the USA.

Not to forget the increasing emphasis on the betterment of the healthcare facilities, research, and protection was of priority. Within a few months, major economies like Russia, China, and the USA were stumbling to pull together. Their economy while the third world countries and the developing. Out of all the pillars that keep a country running, the economy took the hardest and long-term hit amidst the pandemic.

It is also bothersome that the vaccine is still not available to the general public to begin the recovery process anytime soon. Companies closed down, millions of people lost their jobs, and many died during this pandemic.

While the world went into a lockdown, several international areas like mines, forests, and important industrial sites have been restricted. Needless to say, all international trips and travels were put to a halt. Which led to a whirlwind effect on the economy of the globe. The commodity supply, gold, and metal prices. The cryptocurrency industry has been equally impacted. If not more, by the stemming pandemic.

 

The Global Economic Scenario

At present, the economic damage is evident. It is safe to say that this has been one of the biggest economic shocks that the world has experienced in decades. The Global Economic Prospects envisions a 5.2% contraction in the global GDP this year. With human capital erosion, the disintegration of global trade, and supply linkage, this recession brought on by the pandemic is going to leave a lasting scar on all major and minor economies.

A report from the World Bank on how the pandemic is going to change the world suggests that many regions of the world will experience an economic tumble. The South Asian region expects a contraction of 2.7%, the Middle East and North American by 7.2%. Europe and Central Asia by 4.7%, among other substantial regions.

These numbers reflect the backtracking of years of progress that some major countries have made during the last few decades. The development goals have taken a backseat, and the countries are currently dealing with issues from multiple quarters. Weakening health care systems, dissipating trade and tourism, dwindling settlements, and unyielding budget amid ascending debts seems to create an economic ruckus at various national and international levels.

The far-flung outlook of the current economic condition hints towards a lingering global recession. The global economic market is going to experience a potential setback in terms of output and productivity. While many emerging economies were already experiencing a slow growth rate, the blow of COVID-19 makes these challenges arduous to face.


 

Impact of 2020 Global Development on Gold

All small and major political and economic development throughout the world has an impact on the gold market. In these unprecedented situations. The whole global scenario has transformed. Travels have been restricted with little to no economic activity in almost all countries in the world. Needless to say, the global recession is far different from any other economic downturn that the world has faced so far.

Prosaic wisdom suggests that gold appreciates during a time of chaos. However, this was not the case in March 2020. Here is a quick capsule on how gold thrived during the early stages of COVID-19.

 

March 2020

The global market began showing signs of strain during the initial days of March 2020. There were several economic progressions across the state, and the world saw one of the biggest financial crises after 2008. The FED called an emergency meeting to address the current global economic problem, and interest rates were cut to zero. Moreover, at least $700 billion were pledged as liquidity injections.

Again, on March 19th, Congress introduced a massive $2 trillion stimulus package and the gold bullion price reacted positively, posing a $128.63 (+8.58%) gain that week.

Haywire is the best way to describe gold’s behavior in March 2020. The market panic causes the value to frequently spike and plunge as the situation progresses capriciously

The pandemic and the ensuing response from central banks posed several implications for the gold mining industry. From January 1st to August 14th, 2020, gold prices rose by 28%. In the meantime, energy costs and currencies in some of the gold-mining countries dropped, increasing the margins for gold miners.

Gold Mining and Gold Supply

Nevertheless, this positive margin has been offset by two developments- the threat of COVID-19. To many mining companies and their workers and travel restrictions in mining countries that prevent access to gold mines. Lockdowns in countries like Canada, Mexico, Peru, and South Africa forced the operation to scale down and, in some cases, halt completely for a while.

Today, in terms of pace and measure of the decline, the current crisis is much broader and deeper. While no one knows how long this crisis will last, the positive impact on gold prices will be limited. Moreover, the increasing US-China conflict and the presidential elections in the states also had an impact on gold prices. These two circumstances continue to weigh on the dollar and push gold prices for the unforeseeable future.

All these issues are certainly going to have a significant impact on the gold supply. As a whole, almost 8 million ounces (7% of global gold mine supply) of annual gold production are at risk from the pandemic induced upheaval.

 

Impact on Commodity

Another very significant aspect of the economy was rattled when the world was contending with the health emergency brought about by the pandemic. Suspension of all economic activities had almost immediately impacted the commodity market and is most likely to continue to have an impact for a while now. Nevertheless, the real impact of the pandemic on the commodity market depends on how severe it is, how long it lasts, and lastly, how the world states choose to respond to it.

There’s no doubt that the pandemic affected the demand and supply chain of commodities in the market. As a result of the lockdown, the impact was almost immediate and direct. In fact, the pandemic has the potential to topple the supply and demand chain permanently. The impact is visible in the supply sector due to the gap created in the storage. The commodities are not reaching the market from the producers due to border restrictions.

Oil prices have plunged since January 2020, and they have hit a dramatic low in April, with landmark trading at the negative front. Declines have been observed with the sharp fall in demand that, eventually worsening the uncertainty around the oil producers. Oil demands have historically fallen to an unexpected 9.3 million barrels per day in 2020 from 100 million barrels per day in 2019.

 

Energy Prices

Moreover, overall energy prices, including natural gas and coal, expect an average 40% decline in 2020 than in 2019. Although natural gas prices have substantially fallen this year, the prices of coal remain less affected.

A decline in the economic growth of China will weigh heavily on the metal industry. China is known to meet half of the globe’s metal demand. Irrespective of that, gold prices keep rising while buyers seek financial safety in the turbulent market.

The agricultural price is suspected to rise in 2021 slightly. This is following the 3% rise in 2020 due to the shortage of edible goods in various countries. Also, food security remains a major concern for several emerging and developing countries. These concerns arise from the strike to global income level, tight food availability, and border restrictions that restrain food supply in many areas. It is no wonder that food prices have skyrocketed in many countries.

The pandemic is the latest hit to the commodity market. A momentary commodity price shock calls for a stimulative fiscal policy to settle consumption. States that depend on exports of commodities are subject to price swings over the years. In countries that heavily depend on commodities subject to permanent price shock, they need a different approach. A more structural policy like economic diversification, and broadening the tax base may be the requirement to initiate the adjustment to a new economic order.

 

Impact on Cryptocurrency

The cryptocurrency market is a complicated system based on supposition. Here, the investors engage using techniques that generate some biases responsible for endogenous instabilities. There have been many speculations and theories on the reaction of the cryptocurrency market to COVID-19. Many explored the positive impact and the acceleration of the market amidst anxiety and fear among people and investors.

During the coronavirus crisis, the priority of all businesses remained predominantly. On crisis management and functional resilience. The outbreak of COVID-19 took the world by surprise. With its fast-moving, unseen challenges. It has destabilized the global economy and has changed how the world operates. This pandemic could perhaps be the catalyst to move towards a cashless society. Moreover, it may now be the time for cryptocurrency to shine as the interest in blockchain and cryptocurrency steadily increases.

It has been observed that 2020 and, more specifically, coronavirus has enhanced the appetite for cryptocurrency, especially Bitcoin. Bitcoin dominates the cryptocurrency industry by forming almost 60% of the crypto market. During the pandemic, the value of bitcoin touched heights that were not seen since the cryptocurrency boom during 2017 and early 2018.

Cryptocurrencies

FCA released research on crypto-assets recently that suggested that 3.86% of the general population own cryptocurrencies. It also indicated that awareness about cryptocurrency has steadily increased by 31%.

At the recently held Willis Towers Watson Cryptocurrency roundtable event, it was a general consensus that the awareness about cryptocurrency has increased. However, certain barriers were brought into the light. There were growing cybersecurity issues that were enhanced with the reliance on technology. People were not particularly tech-savvy, and hence the apprehension that comes with cryptocurrency investment remains a concern. It was also recognized that there was an increase in cyber scams and criminals were demanding cryptocurrency, specifically bitcoin, as payments for ransomware or fraudulent goods and services.

Despite these issues, Bitcoin held steady throughout the pandemic, and the reasons for this pointed towards how cryptocurrencies have little to do with economic inflation. The fleeting erratic behavior that Bitcoin showed was due to what experts refer to as Halving. Halving happens every four years or when 210,000 Bitcoins are mined. It happened in 2012, and the same fluctuating behavior was shown in Bitcoin prices.

Blockchain System

Contrary to fiat currencies and assets, there are a fixed number of Bitcoins preserved in their value. The blockchain system is strategically designed so that there will always be a fixed number of coins to be mined. Therefore, there is little to no chance that an economic crisis, like the COVID-19 pandemic, will have any effect on the value of crypto assets.

The value of Bitcoin rarely fluctuates before or after halving. In most cases, the value remains predictable even during economic disruption and fluctuations in fiat currencies by the Metcalfe law. This law is based on the principle that the value of a network depends on the size of the network. Hence, unlike other valuable assets, Bitcoin is a more predictable and safer investment during these tumultuous economic times.

Cryptocurrency In 2020

At present, countries like China, Japan, India, and countries within the E.U. have seen the highest number of investors in cryptocurrency in 2020. In the current pandemic situation, Europe has decidedly shown interest in Stable coins and Altcoins.

Many pioneers have been holding Bitcoins for more than 7 to 8 years. The rise in Bitcoin prices has shown stability and growth in the past few years that has not been missed by investors and financial experts.

In fact, many veterans believe that bitcoin is here to stay and has the power to change the current financial state in countries like India, Japan, and other developing countries of the world. The fundamental platform for payment, acquisition, and settlement for Bitcoin has reduced the involvement of intermediaries. The stable and predictable nature of Bitcoin makes it an ideal investment opportunity for beginners and expert investors across the world.

 

 

The Future Outlook- A Changed World

In the face of this disconcerting situation, the urgent priority of the policymakers is to acknowledge the health crisis and contain economic damage as far as possible. In the long course of action, leaders need to make comprehensive reforms programmed to enhance the fundamental drivers of the economy once the health crisis is resolved.

The policies need to focus on rebuilding both short-term and long-term requirements fortifying health services, and setting target stimulus measures to reignite growth. This should also include monetary support for the private sector and money in the hands of the people. Moreover, the primary focus should also remain on sustaining economic activity and relinquishing stagnation to support households, firms, and necessary services.

At the global level, cooperation and coordination of the nation should help take measures focused on slowing down the spread of COVID-19, stimulating economic growth, and curtailing economic damage for a robust global recovery. There is an urgent need for awareness and understanding among the citizens of the world to work hand in hand towards a better global atmosphere.

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