How the coronavirus affects the price of gold

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It’s a pandemic of epic proportions, quickly spreading across continents and stoking fear among millions of people. The stats are dire: as of publication, 100,000 coronavirus cases have been documented, with Italy announcing more than 1,200 infections in a single day. Several US states have declared states of emergencies, and hand sanitizers are sold out at grocers and pharmacies from Vancouver to Singapore.

Due to the outbreak, the financial meltdown has begun. The Dow Jones has been dropping steadily, and recently the Dow’s 3.6 percent drop was in line with the painful sell-offs that have dominated trading over the past two weeks as the outbreak threatens to grind down global economies. The tech-friendly Nasdaq composite has also been battered consistently.

David Donabedian, chief investment officer of CIBC Private Wealth Management, which manages $62 billion, told the Washington Post: “We expect that economic data over the next two to three months will get worse before it gets better.”

When these kinds of health crises devastate populations, gold is often seen as a safe bet by investors. And of course, this isn’t a pandemic’s first rodeo. In 2002-2003, the world was struck by the SARS virus, which also began in China, and as expected gold enjoyed a decent run of boosted value.

Gold is often seen as a yin to the market’s yang. The reason gold often is so resilient during stock market crashes is that the two are negatively correlated. In plainspeak, when one goes up, the other tends to go down.

This makes sense when you think about that stocks benefit from economic growth and stability while gold wins during economic distress and crisis. If the stock market falls, fear is usually skyrocketing, and investors typically seek out the safe haven of gold. If stocks are enjoying a great period, the perceived need for gold from mainstream investors is low.

Often, a health issue affecting more than one country can set off gold prices. To wit, in February 2002, gold was trading at $297.10 US an ounce. It closed above the 20-day moving average of $278, and then the SARS virus appeared in November 2002 in the Guangdong province of China. Gold shot up to about $417 an ounce, and then after the announcement of SARS, gold soared to more than $517 an ounce.

Turning to this week, the price of gold reached a seven-year high at $1,690, while the price of gold in Canadian dollars it climbed to $2,245 CAN.

Financial advisors and experts agree that buying gold is savvy now. “While so much about the current environment remains unclear, there’s one thing that isn’t: gold, which—unlike people and our economies—is immune to the virus,” Goldman Sachs head of global commodities research Jeff Currie said in a note to clients, according to media reports.

He went on to say that gold has outperformed other safe haven assets like the Japanese Yen or Swiss Franc, “a trend we see continuing as long as uncertainty around the full impact of COVID-19 remains.”

Stephen Innes, chief market strategist at AxiCorp, said, “Gold looks like one of the most attractive assets in this global environment, with US rates likely heading towards the zero lower bound.”

CNBC adds that gold has gained 5% this year, far outpacing the S&P 500’s more than 8% decline.

Friday March 6 was an especially bullish day for gold. Kitco writes that considering that it traded the to a low of $1642 and a high of $1692, gold enjoyed a $50 trading range in a single day. The report went on to say, “The unusual component to that range is that the dips and the rallies both occurred extremely quickly within a 15 to 30-minute time parameter. It is for that reason that is highly likely that it was large block trades that move the market in such an extreme manner. While we can expect some real volatility during this time due to the coronavirus it is quite unusual to see the speed at which price has been changing.”

Gold rallies when crises befall the world, so you might be wondering if deceisions by bodies such as the Fed could mitigate the bleak economic outlook. So when the Fed announced an emergency decision last week to cut benchmark interest rates by half a percentage point, stock markets were upbeat for about 15 minutes before resuming their downward spiral.

The New York Times identifies a key reason for that spiralling: “Investors feared that the Fed — whose monetary policy has been a key to the stock market’s long rally — is running out of options to stimulate the economy. Eric Rosengren, the president of the Federal Reserve Bank of Boston, said Friday that the central bank might need to weigh new measures to counter a downturn, including buying a wider array of assets.”

Thing is, as the Times also points, nobody knows how to calm markets, much less how to contain the virus outbreak. When countries such as the US are deliver some relatively good news, such as when the Labor Department announced that the American economy had added 273,000 jobs in February — the markets continued to slump.

The wild times may not ebb anytime soon. “When there’s unprecedented uncertainty, which is what we’re dealing with, we could have elevated volatility for quite some time,” said Julian Emanuel, a strategist at the brokerage firm BTIG, according to the Times.

Helping to drive gold prices will be sustained easing by global central banks. Both the Reserve Bank of Australia and the Bank of Canada followed the Federal Reserve in easing interest rates this past week, as Kitco writes.

“All this money sloshing around financial markets, because of all this loose monetary policy, will be good for gold,” said Colin Cieszynski, chief market strategist, SIA Wealth Management.

When it comes to gold companies, executives are seeking to allay any fears that their own business will fall prey to slumping markets. Barrick Gold CEO Mark Bristow told CNBC that his company learned several lessons from the 2014 Ebola outbreak.

“What that’s taught us is how to manage these situations and the importance of knowing where people have come from, making sure that we attend to hygiene and that we control the access of people into our operations,” Bristow said.

Even more importantly, Bristow went on to say that Barrick learned how to manage “the logistics and the inventory of our critical consumables and those hard-moving items.”

He noted these lessons have continued to benefit Barrick not only because of the coronavirus but also because of the recent Ebola outbreak in the Democratic Republic of the Congo.

“You can be rest assured that the whole of Barrick across the globe looks like our assets used to look like in West Africa when that first outbreak happened,” Bristow said.

Other experts believe gold’s price may come down sooner than you may think, which may mean it could be a ripe time to sell your gold. If you’re looking to offload your bullion or other gold, you can find out more about getting a high rate of return for your gold jewellery or artifacts by visiting this section of Gold.TO on selling gold for cash.

Ryan McKay, commodity strategist at TD Securities, told Kitco that liquidity traps in the marketplace will be a major risk for gold in the near-term.

“As volatility picks up, you will see these rushes to liquidity that can cause gold to drop sharply,” he said.

McKay added that the drops in gold are becoming shallower and shallower as investors’ demand for safe-haven assets overwhelm the market.

“Maybe you shouldn’t try to catch a falling knife, but after the drop when gold prices start to stabilize, these could be interesting buying opportunities for investors,” he added.

Earlier in 2019, gold won over Wall Street with a significant bump in August when it climbed to a six-year high of $1,542. The reason for its rise differs greatly from the current panic over the coronavirus. The summer’s uncertainty over US-China trade talks was a key factor. U.S. President Donald Trump threatened to hike duties on $250 billion in Chinese goods to 30% from 25% and boost tariffs on another $300 billion in products to 15% from 10%, in response to Chinese retaliation.

This month’s uptrend in gold prices may inspire many people to consider selling gold. Gold.to helps simplify the process of selling your gold and ensures that you get a fair and accurate payout.

Also, if you have gold jewellery or coins that you’d like to part with, now is no better time to get an impressive return on those investments. Contact us anytime if you’d like to speak to our precious-metals experts to help you determine the value of any gold or items you are looking to sell.

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