Those enamored with charts and those preferring fundamentals are, for once, aligned.
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The gold price hit a 10-year high as markets took fright at the impact of the coronavirus (Covid-19) on supply chains and productivity.
The flight to safe havens took a temporary battering last Friday, as sharp falls on stock markets prompted day trader margin calls and investors liquidated precious metal holdings to meet the costs.
But the horrendous volatility on the stock market is matched only by the horrendous potential damage widespread infection of the virus could potentially cause.
Will it reach the Armageddon stages some commentators love to describe?
Almost certainly not.
Comparisons to the 1918 influenza pandemic ignore the immeasurable advances in medicine and medical care over the intervening 100 years, but even what we are seeing unfolding today should be cause for worry in terms of global growth and corporate profits (hence the stock market falls). Industries including technology, automotive, tourism and consumer goods have already been impacted by the absence of China in the global supply chain for the last six weeks.
That process is not over, even with falling infection rates in China and the supposed return to work.
Workers in Chinese factories are hindered from travel, many factories remain on partial quarantine and consumers are nowhere to be seen in car showrooms or shopping malls across China. If China flatlines in Q1, it will be doing well; most Western economies are in for a manufacturing contraction, as are some of China’s southeast Asian neighbors.
Chartists will say gold remains on a bull run. Gold tailed off in Q4 on the back of a perceived easing in trade fears, but such comfort has paled in the harsh glare of Covid-19’s impact.
Falling interest rates and negative bond yields are not helping stock market sentiment but they are music to the ears of gold bulls, who see the rising cost of food products and shortages caused by supply chain disruption adding to a toxic mix of challenges that does not bode well for markets in the first half of the year.
What transpires further out is another story.
Without a doubt, Beijing will throw money at jumpstarting the economy again once it feels it safe to do so.
That will not be in what remains of Q1 and may likely not be materially impactful before the tail end of the first half. There is a lot of metal inventory caught up in the supply chain that needs to be consumed before real demand filters back to overseas miners and refiners, or demand from domestic manufacturers. When it does begin to impact commodity demand, particularly metals, then expect a bounce.
At that point, gold, global pandemic excepting, may well go into reverse as the sense of relief and lower stock market prices entice investors back into the market.
Wednesday’s 600-point S&P 500 bounce is a case in point, as investors took solace from the Fed’s surprise half-point rate cut and the narrowing field of Democratic candidates reduced uncertainty.
But the U.S., China and the global economy are not out of the woods yet — not by any means.
Volatility is going to remain the order of the day as markets swing to any news on the spread of the virus and of the hit economies or industries are taking from the supply chain disruption.
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For the time being, gold bulls will maintain their preferred metal remains a good investment.