The financial melt-down continues to expand and deepen
The current coronavirus crisis continues to dramatically affect financial markets across the board. Not only in the United States but globally. However, the last few days media outlets began to label the crisis as a pandemic rather than an epidemic. Since the onset of the discovery of this new virus many financial analysts, central banks along with the medical community as a whole spoke to the fact that left unchecked this epidemic will most certainly move to the next level; a pandemic.
Although the symptoms created from contracting this virus are far less dangerous than SARS, the probability that the current crisis will affect many more individuals than SARS or even the Spanish flu which occurred in 1918. The 1918 event infected 500 million around the world, or 27% of the global population. The reason that the Sars crisis only killed 774 deaths is that the virus was so deadly that a high number of infected individuals died before they could infect others. Coronavirus differs in that the gestation period can last up to two weeks where the affected person shows no signs of the flu, but is still able to transmit the disease to others. Data from Johns Hopkins University indicates that while the number of worldwide cases is now greater than 127,000, it also shows that more than 68,000 people have recovered from the virus so far. To date over 4,700 people have died but as with most flus and viruses those individuals were primarily old, sick, or very young.
The issue is not the severity of the virus but rather how it has been affecting global economies because of the real threat of spreading globally to millions of individuals.
The most unusual aspect of the virus is its effect on the global economy and an alarming fact is that almost every country is experiencing a GDP contraction. More so as the virus spreads more and events are being cancelled including live sports, concerts and even restaurants, this magnifies and accelerates the worldwide GDP contractions.
No market was left unscathed today with the Dow closing down by 2,352 points which is a drop of 9.99%. This is the largest single day decline since black Monday which occurred on October 19, 1987. The precious metals which would typically have a bullish demeanor under this type of scenario has done the exact opposite. Gold futures are currently trading at $1,579, after opening this morning at $1582, and opening on Wednesday at $1632.
The U.S. dollar has been under tremendous pressure over the last three weeks however today it gained over a full percentage point. As we have spoken about on multiple occasions there is one constant factor that seems to be running through all of the financial instruments; and that is that volatility and price ranges have dramatically grown. And the uncertainty, or fear index is resulting in a stampede to cash selling all investments with the exception of government bonds.
The typical inverse correlation between gold and equities has disappeared. Currently both asset classes are in a mass liquidation mode.
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Gold Forecast: Proper Action
We are currently flat with no active trades after our stop was hit last night
Thursday March 5th we sent out a trade alert recommending that you initiate a long position.
“Trade Alert: buy April gold at the market. Gold continues to rally. Buy April Gold at the market 1668. Stop @ $1631”
Our wasa hit at $1631, and gold continued to drop closin at $1581
Gold Market Forecast
The Dow, S&P 500 and the NASDAQ composite all lost major ground today. All of the indices mentioned lost in excess of 9% in a single trading day. When you add that to the 13% drawdown of last week we are looking at a 20% decline in the current market Of US equities which means that we are in a deep correction. This is the first instance of such a selloff since the 2008 financial crisis, and now that data has confirmed that we have a real correction the running to the upside over the last 11 years and stocks was impressive to say the least.
It is gold that has become a perplexing asset to analyze. Typically you expect a certain period of time initially when a correction begins in stocks for gold to also selloff. This typically happens for two reasons one the fear factor, and secondly mass liquidation’s cover margin calls and debts that have occurred during the tremendous decline. However in most cases gold will recover and return to its bullish demeanor as a safe haven class asset, benefiting from the flow of liquidity generated through the massive selloff stocks.