A recent newsletter noted that there has not been a “Black Swan” in a while, a “Black Swan” being an event that comes as a surprise and has a major effect on mankind’s affairs. The coronavirus, now named COVID-19, just rendered that observation invalid.
In reaction to the spread of COVID-19, over the last four days the Dow Industrials dropped some 2,300 points while gold climbed $96. Since May 2019, gold is up $375. Is stock selling and gold buying because investors foresaw the impact that the virus will have on global trade with many Asian factories shutting down?
Or, is it because COVID-19 cases have spread beyond China and threatens to be another 1918 influenza pandemic that infected 500 million people, then about 27% of the world’s population? The death toll is estimated to have been 40 to 50 million.
According to the latest World Health Organization (WHO) statistics, globally 79,331 cases have been confirmed, with 2,595 deaths. China has most of the infections and deaths, 77,262 and 2,572 respectively. Outside China, 2,069 infections with 23 deaths. Infections have now been reported in 29 countries.
Here’s hoping that COVID-19 will be contained. Regardless of the reasons for stock selling and gold buying, COVID-19 is having an impact.
For months, many analysts have been warning that the stock market is in a bubble, which here means an economic cycle characterized by the rapid escalation of asset prices, which are often followed by a contraction. It is created by a surge in asset prices unwarranted by the fundamentals of the asset and driven by exuberant market behavior. Bubbles are often incited by central bank printing.
I will not disagree that stocks have been in a bubble. The question is, “Has it popped?”
Still, gold and silver seem reasonable priced, with maybe a little downside risk at current levels. However, if a global recession sets in and the world’s central banks think that they are going to reverse it by massive money creation, gold and silver are really reasonably priced.