The gold price is trading higher in today’s trading session over fears that a 2nd wave of the coronavirus is looming after reports of new cases emerging out of South Korea and Wuhan which were only recently declared as safe zones and saw parts of their economies re-open
This is devastating news for the world economy which had just started to recover on hopes that the worst of the coronavirus was behind us and that countries could return to some sort of normality, but it seems as this has been put on hold for now. This is good news for gold because a 2nd wave of the virus would see world markets once again tumble and strict lockdown measures reintroduced and the precious metal would benefit as a safe haven.
"The prospect of the economy gradually returning to normal was overshadowed by new clusters of corona cases in South Korea and in the city of Wuhan where the roots of the coronavirus lie. The reports trigger fears of a second wave and with it potentially new and even harsher quarantine measures," says Mathias Van der Jeugt, an analyst with KBC Markets in Brussels.
For the past month, gold has remained in a trading range of around $50 dollars as investors sat on the sidelines and awaited news on the effects of the coronavirus which have left some analysts scratching their heads. They believe the price should be substantially higher considering what happened after the global financial crisis of 2008 when gold surged on the back of an unprecedented stimulus program which saw various governments around the world flood their economies with money
This time around, the monetary stimulus programs being implemented are much bigger than 2008 and although gold has benefited, the price hasn’t risen as much as expected and some analysts believe it is only a matter of time before this happens
“Gold many be sleeping for now, but much higher highs are on the horizon if the price action that followed 2008 is an example,” said Andrew Hecht, of the Hecht Commodity Report.
“The stimulus was bullish for the gold market in the aftermath of the 2008 financial crisis. Gold is likely to have an even more explosive impact on the yellow metal in 2020 and beyond. The current stimulus requirements, at over five times more than in 2008, reflect a far more severe threat to the economy in 2020.” He added.