The global economy has been rattled in recent weeks, with the coronavirus having infected as many as 43,000 people and killing up to 1,000, mostly in mainland China.
News of the virus spreading across China prompted the government to adopt draconian measures to seal off cities with high levels of cases, especially Wuhan, where the virus originated, but the coronavirus has managed to reach other parts of Asia, as well as Europe and North America.
Markets had been starting to expect that the global economy could turn a corner in 2020, but news of the coronavirus has prompted a sell-off in equities and higher demand for safe havens such as gold and treasuries.
Gold prices are now close to all-time highs in pound sterling terms, over £1,200 per troy ounce.
Virus snuffs out reflation trade
Following a volatile 2019, in which central banks started to adopt more loose monetary policy, 2020 was expected to be a year of higher highs in many parts of the market. There were apparently grounds for optimism in the mild reflation trade, as many expected this loose monetary policy to bolster economies.
However, the coronavirus has done much to disrupt the Chinese economy, and by extension, every major economy which relies on China for goods and services. The country had been in the midst of its lunar holiday, as the Year of the Mouse or Rat had just begun.
When China faced its large major epidemic, with the 2003 SARS outbreak, its economy was a fraction of its present size, and with the coronavirus having infected more people than SARS at the time of writing, the economic impact could be much greater.
China’s economy enters into this new outbreak weaker than it was in 2003 – the virus could hit economy at a time when the US/China trade war has already done much to dampen growth expectations. The shutdown of shops and factories in China is already affecting massive corporations such as Apple, showing just how globalised the crisis has become in a few short weeks.
Gold rallies in response
Acting like a canary in the coalmine, gold prices have surged in response to the coronavirus fallout. Since the turn of the New Year, prices in the UK have risen as much as 12 per cent, as China, one of the greatest drivers of global growth in the last 30 years, finds itself stuck in the doldrums.
Curiously, gold has rallied in the past often due to concerns over inflation and weak currencies, particularly in the US or the UK, especially if the pound has been devalued. The coronavirus crisis has seen gold rally in the midst of what economists would call a deflationary shock to the markets.
Commodities such as oil and copper, often good metrics for signs of demand and inflationary expectations in the global economy, have fallen since the news of the coronavirus started to emerge in January. It’s no surprise, as the Chinese economy is one of the biggest consumers of oil and copper.
If the world’s second largest economy grinds to a halt, it’s more than likely that copper and oil prices feel the pinch at some point. Gold, on the other hand, is skirting around the issue and posting higher prices.
Getting 2020 vision
In October 2019, we referred to gold as a suitable safe haven offering 2020 vision, in a time when investors crave nothing but financial security, following a tempestuous decade of financial crisis and numerous shocks to the system.
UK Bullion offers the perfect antidote to further shocks in the road ahead this year, with gold items such as the 2020 1oz Gold Britannia. Priced at £1,234.39, the 2020 Gold Britannia is VAT-free, and a memorable addition to your gold coin collection.
For something a little bit more traditional, don’t forget the 2020 Gold Full Sovereign, at £298.57. It is also VAT-free, and the latest in a long line of gold sovereigns minted using the likeness of Queen Elizabeth II, in what will be the 68th year of her reign.
For more information about the gold coins UK Bullion has on offer, check out our gold coin collection.
Gold during black swan events
So-called “black swan” events are rare, but when they do occur, such as during the recent coronavirus outbreak, investors get nervous and look to more traditional stores of value to keep their money safe. Gold has been a trusted safe haven for generations.
Its value has been able to hold steady during times of great volatility in the wider market, and made great gains when other assets have seen disappointing performances. Gold is an effective fear factor gauge, and has the characteristic of spiking unexpectedly – just remember the great bull run of 1979-80.
With one of the largest economies in the history of the world experiencing a significant deceleration due to the coronavirus in recent weeks, gold is proving increasingly popular. With interest rates in the UK at record lows, policy makers appear like they’re running out of tools, if an economic shock does occur in the coming months.
On the other hand, gold is reaching ever-closer to its 2019 all-time highs, and all it takes is another downward lurch in global markets to push gold prices to new heights.
In the meantime, it’s worth seriously considering the benefits to be had from investing in gold, one of the greatest stores of wealth in human history.
To discuss investing in gold, call UK Bullion for more information on 0800 090 3256.