The COVID-19 pandemic and the resulting lockdowns have affected businesses and the livelihoods of millions of people across the world, with some experts fearing deflation reminiscent of the Great Depression. However, some economists believe we may actually be heading towards a different reality altogether: could inflation be the next demon that lurks around the corner?
Over the past several weeks we have seen gold surge in volatility due to high demand, the price rising along with increasing uncertainty from the global coronavirus pandemic which is greatly affecting global markets.
Some claims state that the UK may even see the largest economic contraction in over a century, and that the economic impact of the pandemic could even push the UK’s budget deficit to as high as £260 billion.
The coronavirus pandemic is an unprecedented phenomenon – a ‘black swan’ event, the like of which unseen since the Spanish Flu outbreak in 1918. With thousands of people killed across the world, and lockdowns affecting the livelihoods of people and businesses, it is unrealistic to presume the UK, or even the world, can go ‘back to normal’ after the virus is under control.
Inflation Rears its Head?
The pandemic has induced recession, and the huge increase in government debts, as well as the printing of money, give a huge opportunity for inflation to rear its head.
Some economists have suggested that fiscal easing, together with product shortages, and eroding supply chains could possibly all lead to a massive rise in consumer prices. Monetary authorities could then be pressured to keep interest rates as low as possible. Once lockdowns are lifted, costs could rebound with economic recovery, and we could even see inflation resembling levels seen after WWI and WWII. An economic depression, then boom, and inflation could be a possible future outcome.
Inflation may even be almost welcome for some, especially gold investors. As history tells us, in times where inflation remains high, our favourite precious metal can become a tool to hedge against inflation, in turn pushing gold prices higher.
With reports of a possible inflation lurking around the corner, could we see gold back on the radar for many investors looking to protect themselves from economic pressures?
This blog represents one person’s opinion only. Customers should conduct their own research and take advice before making an investment. We do not offer investment advice.