Over the last few days, we’ve all witnessed gold breaking over the $1600 mark as stocks suffer significant losses. There is a lot of nervousness in the market and people are putting gold and silver into their portfolios.
In the meantime, the US dollar is actually strengthening against both the Euro and the Japanese Yen. Investors see the dollar as a safe heaven trade, as people move into the dollar and into the US equity market. In this market condition, there is a headwind for precious metals especially gold.
The Coronavirus Threatens the Global Economy
The coronavirus has caused an unprecedented economical slowdown with investors rushing into gold to safeguard their investments. The market did not take seriously the effects of the coronavirus early and only recently came to terms with the massive threat it poses to the global economy.
A few days ago the Chinese finally admitted that their GDP is going to get hammered in the first quarter. The market now is taking this seriously. If this continues for very much longer it will have a devastating impact in global growth which will put all the central banks including the FED on full monetary easing policy and that reality is starting potentially to sink in.
More Reasons for the Gold Rally
In addition, the coronavirus is just the tip of the iceberg. There are many reasons for the price of gold to hit the roof apart from the Wuhan virus.
- The overvalued stock market will have to correct itself sooner or later
- The upcoming recession that is been held up by the FED
- The war on cash with the Europeans continuing their negative interest rates policy
- The low bond yields
- The global debt bubble
- Middle East tensions in Syria escalade
The metals, gold, and silver, continue to charge higher with parabolic moves and heavy volume. In my opinion, it will be healthy for gold to see a pullback, to allow some profit-taking if this is going to be a bull market. All the signs are there for the rally to continue, we are bullish on gold and silver.