Coronavirus outbreak in China adds to the already-growing list of global uncertainties, setting the stage for a gold price rally.
The Wuhan Coronavirus has so far claimed nine lives in China and up to 440 people are said to have been infected. But these are mere figures reported by the Chinese government, which is known to manipulate statistics when they report about such epidemics like they did with SARS. This outbreak, coupled with the several other risks that lie ahead, can cause gold price to soar in 2020.
China delayed the reporting of the SARS outbreak to the World Health Organization (WHO) in 2003. By the time they reported the illness, it had already claimed 774 lives and infected 8,098 people in 30 countries. China even hid patients from WHO authorities. The disease caused Chinese GDP to shrink by 0.8 percentage point in 2003.
You can bank on China doing the same with this new strain, which has never been identified and has no vaccine. The disease has already made its way into the U.S., as confirmed by CDC. Thousands could already be infected.
The mystery illness couldn’t have come at a worse time as 2020 is shaping up to be a year of economic and geopolitical uncertainties. Now, it looks like a perfect recipe for a global meltdown is forming, and it makes a strong case for the gold price to soar.
Many risks threaten the global financial markets in 2020, and one of them is Brexit. When the U.K. voted to quit the European Union back in 2016, the event wiped over $2 trillion from world markets in a matter of days. Brexit looks likely to happen now that Boris Johnson has secured a strong majority in parliament.
Overvaluation risks also linger. The Dow Jones Industrial Average has risen 4,000 points since September as the Federal Reserve’s liquidity injection inflated the stock market bubble. The broader market rally is not backed by fundamentals as corporate earnings have been declining. The recent rally has made stocks overvalued, and it won’t be long before reality catches up.
Geopolitical tensions are rising around the globe, especially in the Middle East, that threatens the financial markets. As the 2020 election looms large, Trump has plenty of reasons to keep the tensions up in the area.
With Coronavirus thrown into the mix, a disaster for the global markets looms large in 2020. This makes a strong case for gold, an asset that thrives during uncertainty.
At the time of writing, the gold bulls have been taking a breather from a rally that saw bullion top six-year highs.
The world’s biggest hedge fund, Bridgewater Associates, recently slapped a $2,000 price target on gold, citing global uncertainties. This is what Bridgewater’s co-chief investment officer, Greg Jensen, said in an interview with the Financial Times:
There is so much boiling conflict. People should be prepared for a much wider range of potentially more volatile set of circumstances than what we are accustomed to.
Last year, the fund’s founder Ray Dalio predicted a ‘paradigm shift’ for global investors towards gold.
The reasons for gold to burst through the roof keep piling up. With Coronavirus further adding to the uncertainties, investors are likely to flock to gold and send prices soaring in 2020.
Disclaimer: The above should not be considered trading advice from CCN.com.
This article was edited by Sam Bourgi.
Last modified: January 22, 2020 11:38 PM UTC