LAWRIE WILLIAMS: Gold closes in on $1700 as virus cases exceed 100,000 - Equities continue to tank

As we had predicted several times over the past few weeks, the world is at last taking the Covid-19 threat to global GDP strongly, general equities are diving and gold is climbing and, at the time of writing is approaching the $1,700 level.  Although, according to Chinese official figures the incidence of the virus is declining in that nation with few new cases apparent outside its Wuhan epicentre, the virus has spread to at least around 90 other countries globally and is proving hugely difficult to bring under control with new virus hotspots in South Korea, Iran and Italy so far.  Yet another cruise ship with upwards of 3,000 people on board appears to be in quarantine – this time off San Francisco in the USA.

Even when the new coronavirus was primarily confined to China alone, with millions of its citizens in a lockdown situation and effectively confined to their homes, the resultant decimation of that country’s manufacturing-led, export-dependent economy has caused substantial interruptions in the global supply chain and alone has had a huge impact on likely global GDP growth.  The U.S. is probably key here with many major U.S. corporations dependent on China for the supply of goods and components.  The Wuhan region alone accounts for an enormous proportion of the global supply for flat screens for TVs and computers for example and has several car manufacturing facilities and this part of the country is still effectively completely shut down and will probably remain so until much later this month.

U.S. equities in particular were already hugely elevated and many respected economists and investment commentators have been long predicting a general equities crash.  But this had been a long time coming.  Maybe it needed a trigger to set this possible crash in motion and the coronavirus may well have served to provide this. 

As news of the virus spreads across the U.S., which it inevitably will, and accompanying deaths increase as the virus incidence peaks over the next several weeks – or maybe months – U.S. markets may continue to fall, dragging global ones down with them, particularly if investors panic which is certainly possible.  Asian and European equities markets are all heavily down today (Friday) and Wall Street has followed suit opening sharply down after yesterday’s very sharp falls. 

The dollar is falling too following the Fed’s 50 basis point emergency base rate cut earlier this week and there are expectations it may cut further at the FOMC meeting coming up in around 10 days time.  Better than expected jobs figures caused a brief blip in the market Friday with gold coming off sharply and equities recovering a little, but this effect soon petered out and things pretty well got back to where they were. 

A weaker dollar tends to translate into a stronger gold price and while the powers that be may be trying to keep a gold price surge at bay they look like they may well be beginning to fight a losing battle.  Silver, being a much smaller market money-wise, may be easier to control and so far it has not really benefited from gold’s gains with the Gold:Silver Ratio (GSR) rising back to around 97 at the time of writing – a high GSR is bad for silver meaning it is not keeping up with the rise in the gold price.

Markets remain extremely volatile though and are easily moved by media spin and positive or negative economic data announcements.  Overall we see strength in gold at least, even if not in the other precious metals, while the general equities market remains vulnerable to further big falls.

 

06 Mar 2020

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London - recently described as the World’s No. 2 University (after MIT).

e: lawrie.williams@sharpspixley.com