As coronavirus panic intensifies across the globe — the record of nations touched by the virus has climbed to almost 60, greater than 86,000 individuals have been contaminated and over 2,900 have died — what’s subsequent for the markets?
The gold value was virtually unchanged final week after a roller-coaster experience in the course of the fastest-ever correction on Wall Road that left the Dow Jones down 12 per cent.
Gold ended the week at $1,586 (Dh5,825) an oz., precisely the identical quantity because it began the earlier Friday. However final Monday the yellow steel surged to $1,665, its largest leap in value in additional than a decade, earlier than returning safely again to earth, primarily in late buying and selling on Friday.
US treasury bonds labored significantly better as a hedge in opposition to the collapsing inventory market: 10-year treasury yields fell 25 factors to beneath 1.2 per cent for the primary time ever, stoking up bond costs that transfer in the wrong way to yields.
That mentioned, holding gold final week was one of many only a few secure havens in a nasty storm. This noticed the Dow Jones make a historic file factors loss for a single day on Thursday.
Different gold-related investments didn’t fare as nicely. Silver was off over 10 per cent. Shares in gold and silver producers had been dragged down together with the remainder of the inventory market. Bitcoin and the greenback fell.
Bullion holders have to be questioning whether or not their luck can final, or is it time to promote?
Most likely not. Friday’s Wall Road sell-off regarded like the tip of this correction with shares first plunging deeply on the open with losses of over 1,000 factors, however then attracting late discount hunters to shut a extra modest 357 factors down.
How will buyers viewing their battered portfolios this weekend take the information? To some extent, it will hinge on how the US coronavirus scare pans out.
The primary US loss of life was confirmed within the state of Washington on the weekend — a person in his fifties who had underlying well being situations however who hadn’t travelled to any affected areas. There at the moment are 24 instances of contaminated individuals within the US, excluding 47 others with the virus who had been repatriated from Wuhan or from the Diamond Princess cruise ship.
The principle drawback for US inventory markets isn’t the virus-induced panic however huge overvaluation and a potential socialist candidate for president. The parabolic latest value strikes in shares like Apple can solely ever finish badly, and these shares do have much more room to return down.
But the US Federal Reserve is sure to reply with rate of interest reductions and extraordinary financial coverage. Earlier than final week one charge reduce was anticipated later this yr. That has now trebled to 3 cuts, with the primary in March virtually sure.
Quantitative easing and different financial tips may even be again on the agenda. Public spending to counter an financial downturn — with precise manufacturing down — would possibly nicely show inflationary. For instance, Hong Kong gave all its residents $1,200 to spend final week.
However, this could all assist share costs to stabilise — and it is a US presidential election yr. Such insurance policies will certainly be a fantastic help for valuable metals, albeit costs will doubtless be very risky.
Suppose how gold costs trebled and silver costs moved up five-fold from the sell-off in 2008 to the highs of 2011. That occurred within the wake of the final international financial bailout by the Fed and China. Will it actually be any completely different this time?
If you wish to diversify into gold the best technique to do it’s to purchase an appropriate gold-backed alternate traded fund like GLD, BAR or SGOL. It is a lot easier than lugging gold bars round, solves the safety drawback and gives on the spot liquidity.
Be extra cautious about dashing to put money into the shares of gold producers as like final week they get dumped because the inventory market falls. Gold share ETFs like GDX and GXDJ additionally closed sharply decrease.
Watch for the inventory market sell-off to indicate clear indicators of reaching a backside. This might take three to 6 months. However gold costs will doubtless stick with it upwards regardless. My prediction for the very best gold value is on US presidential election day.
As for silver ETFs, there may be the iShares Silver Belief (SLV). Final week’s losses in silver left the ratio of gold to silver at a close to file 95 by comparability to the long-term common of 55.
That units silver up for enormous outperformance in opposition to gold within the close to future. When it comes it will doubtless be proper out of the blue, so stocking up on silver now and using with its infamous volatility ought to repay handsomely.
Gold and silver are nonetheless on a path that results in a lot increased costs.
Peter Cooper has been writing about Gulf finance for 20 years
Up to date: March 1, 2020 11:34 AM