U.S equities continue to lose value, and the damage is deepening

Last week U.S. equities began the first real correction that we have seen since the end of the 2008 financial crisis. Over the last 10 years we have had periodical selloffs in U.S. equities, however they were shallow when compared to the activity of last week and today’s decline. The Dow Jones industrial average lost over 12% last week. Market technicians believe that a decline of 10% or greater indicates a correction rather than a shallow dip.

Today stocks plunged and resulted in a loss of almost double the daily drawdowns we saw last week. Today the Dow dropped 2,013 points, which is a decline of 7.79%. The S&P 500 lost 7.6%, and the NASDAQ composite lost 7.29%. Even during corrections it is unusual to see that deep of a loss in a single day, when you add that to the fact of last week’s decline which was greater than 10%, it is clear that market participants, traders and investors are basically running to the hills and liquidating on a massive scale.

Last week’s severe decline in U.S. equities have the predictable effect of ramping up the safe haven asset group specifically gold. Coupled with the surprise announcement last Tuesday of an emergency rate cut we saw gold gain tremendous value last week. Many analysts including myself believed that last week’s rise in gold indicated that market participants were repositioning their investments and using gold as a safe haven hedge.

In fact, that was the first time since the decline which is now in its fourth week that gold began to be favored as a safe haven rather than be another investment that market participants were liquidating. During that period, I posed the possibility that the selloff was so severe that there was mass liquidation to either cover margin calls or simply move all their investments to cash.

Jim Wyckoff the senior market analysts and columnist here at Kitco put it very precisely when he said, “there’s an old adage that during keen market turmoil and high anxiety, when traders can’t sell what they want they sell what they can.” This was certainly true today.

As of 4:55 PM EST spot gold was still up by $4.50. However according to the KGX (Kitco gold index) dollar weakness added $18.20 of value per ounce while traders bid gold lower to the tune of $13.70 resulting in a gain of $4.50 on the day.

What is clear is that the current coronavirus epidemic has continued to wreak havoc on all major financial markets globally. However, it is most likely that if the selling in equities continues gold will return as a favored place to park investment dollars during this crisis.

Wishing you as always, good trading,

Gary Wagner

Editor’s note: we apologize for the delay in releasing today’s video report. In Hawaii we never change our clocks and the fact that the mainland did escaped my attention today.