Coronavirus Strikes Back. But Force Is Strong With Gold / Commodities / Gold & Silver 2020

We all fear the second wave of infections. But the U.S. hasn’t evencontrolled the first one! Bad news for Americans, but good news for gold.

Please take a look at the chart below. As you can see, the epidemiological situation in the UnitedStates does not look well. The number ofnew daily confirmed Covid-19 cases has been rising again since mid-June,which means that coronavirus is far from being contained. Actually, the numberof new cases has almost reached a new record level!

Sadly, the number of daily deaths has also increased recently, as thechart below shows. The spike resulted from the change in methodology, but evenwithout it, the downward trend has probably ended. Luckily, as now young peopleare mostly among the newly infected, the case fatality rate could be lower thanin April.

Who could supposethat hasty reopening of economies without proper testing and contact tracing,and mass riots could cause the second wave of infections? Actually, this iswhat I was afraid of. At the beginning of June, I wrote:

themass protests during the pandemic is, um, well, not something whatepidemiologists dream of. You don’t have to be a scientistto deduce that big demonstrations and large gatherings – and many protesters donot even wear masks – could accelerate the viral spread and increase thechances of the second wave of infections, or at least, hamper the decelerationof the epidemic. 

I mentioned today the second wage of infections. But actually Americadoes not deal with the second wave. The U.S. could not even cope with the first wave! And, oh, just asa reminder, we are talking about the wealthiest country in the world!

The charts above present nationwide data. But situation in certain statesis actually much worse. The number ofnew cases and hospitalizations are quickly accelerating in several states, whichis going to be problematic for the economy and the markets. For example, Texashalted its reopening because of the resurgence of Covid-19 infections andhospitalizations.

Meanwhile, in New York, Governor Andrew Cuomo introduced quarantine foreveryone coming from eight states suffering from the most intense resurgence ofthe coronavirus – Alabama, Arizona, Arkansas, Florida, North Carolina, SouthCarolina, Texas and Utah – and delayed the reopening of malls, gyms, andcinemas.

Moreover, some companies either has closed their stores (like Apple inHouston) or delayed the reopening of their premises (like Disney and its themeparks in California). Such actions hit, of course, the economy. For example,the U.S. economic recovery tracker developed by Oxford Economics showed a smalldeterioration in the week ending June 12 after 10 weeks of improvement. Hence, after a strong initial phase of recovery,we could enter a period of slower phase, or even a reversal, if the recentresurgence of Covid-19 infections accelerates and gets out of control.

Implicationsfor Gold

What does it all mean for the gold market? Well, the longer and moresevere the pandemic, the better for gold. Theresurgence of infections implies the delayed rewind of the Great Lockdown. The more delayed thefull economic unlock, the slower the recovery. Moreover, the accelerated spreadof the coronavirus could trigger the reimplementation of lockdowns or othercontainment measures. In such a scenario, another stock market crash is likely. Gold could benefit then at the expense of risky assets. But the firesale of equities could also pull gold down, at least initially. Anotherdownward risk for the gold market is the strengthening U.S. dollar when turmoilhits. On Thursday, the greenback appreciated, while the price ofthe yellow metal declined. However, over the longer run, it seems that goldwill remain an attractive safe haven for investors (and itcan even gain more value) until the pandemic is over and the global economyrecovers fully.

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Arkadiusz Sieron
Sunshine Profits‘ MarketOverview Editor

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