The impact of coronavirus is certainly being felt in the financial markets. Although stocks have continued their descent, the news about gold is interesting, to say the least. Is it wise to sell gold sooner than later? Let’s take a closer look at what’s going on in the rest of the market and the world.
Oil exports have declined, and China has ceased nearly all imports. OPEC announced production cuts earlier this month; cuts which were unexpected in both volume and timing. As updates have been released and a higher number of confirmed cases reported, the economic isolation has continued.
A cut in interest rate was expected from the US Federal Reserve. However, for the first time since 2008’s financial crisis, they acted with a large cut outside of their typical meeting announcement, even after the President announced that it was not a time to panic. Since that time, the President has also suggested possible future cuts.
Market Reaction Not the Same as SARS
China’s SARS outbreak near the end of 2002 occurred when gold was quoting at $300 or more. This is far lower than the recent closing price listed below. As well, China only accounted for 4% of the global GDP at that time. Today, China holds 17% of the GDP. It’s percentage of global trade has also risen since the SARS outbreak, from 5% to 40%.1
Gold Is a Safe Haven
Investors worldwide view precious metals as safe havens in times of financial crisis. This is because they offer the opportunity to diversify portfolios and store value. They also provide a shield in the face of inflation; gold prices have remained reliable despite actions by China to moderate its activity in the physical market and reinforce its economy.
Due to the above reasons, as well as the current market volatility and the presumption that it will continue, investors are being prompted to take advantage of gold’s safe haven status. This has resulted in the seemingly meteoric rise in gold prices.
Gold Prices in the Future
As the outbreak begun to widen, the price of gold reached a number that hadn’t been seen since December of 2012. While it’s impossible to predict the future of the outbreak and resulting effect on future prices, gold closed at 1638.35 at the end of the trading day on March 11th. On that day, it was predicted that April gold futures would see much activity.2
Should You Sell Your Gold?
It’s very possible that gold will continue its upward trend. But with the situation changing seemingly by the minute and no way to know how long it will be until the coronavirus crisis is over, the time to sell while prices are high may be limited.
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