The spread of the coronavirus in China has the stock market on edge this week, leading to a sharp 244 point drop in the Dow Jones Industrial Index during trading yesterday (Thursday). That’s good news for gold prices as those drops mean risk aversion is on the up – making now a great time to buy.
The World Health Organisation has today classed the virus as a global health emergency after cases were confirmed in 20 other countries including the UK, Australia, Germany and the United Arab Emirates. 213 people have been killed so far and almost 10,000 cases reported.
The rapid spread of the virus has led many nations to repatriate their citizens from the epicentre of the virus in Wuhan. It has also seen villages building temporary walls to isolate themselves and stop outsiders from entering. The economic impact of the virus is what is worrying markets – after the World Health Organisation reclassified the virus as a global emergency, stocks did begin to recover some lost ground but, there are still many unknowns and, in the longer term, it’s clear that there will be economic consequences.
CNBC reports that the founder of The Sevens Report, Tom Essaye considers future economic losses will be likely, giving markets cause for concern. He said, “The spread of the Wuhan virus isn’t accelerating, but markets are becoming more concerned about future earnings and economic growth as companies implement work stoppages to reduce the chance of the disease spreading.”
So far, a number of airlines have suspended flights to mainland China, with British Airways reporting no seats available until March, leading to a 6% loss earlier this week for owner IAG. Cathay Pacific shares also dropped 3.2% as it announced it had more than halved its China-bound flights.
Starbucks has closed over 2000 of its coffee shops in China and has said the closures will affect its financial results. McDonalds, KFC, H&M, Pizza Hut and Disney have also ceased some or all operations in the country. Many factories have also closed – affecting businesses such as Apple and car makers like Toyota and a number of hotel chains have been forced to offer refunds and seen their shares hit.
CNBC’s Fred Imbert noted that the virus has also triggered an inversion of the yield curve, which in all but one instance in the last 50 years has indicated a forthcoming recession – again making a strong argument to buy gold now. He said, “…concerns over the coronavirus and how it will impact remain. Investors increased their exposure to bonds, briefly pushing the 10-year Treasury yield below its 3-month counterpart, triggering a so-called inversion. Traders worry when the yield curve inverts because, in the past, this event has preceded recessionary periods.”
Gold is benefitting with prices rising by $13.80 on Thursday thanks to safe haven demand. Buy now to take full advantage.