What Pandemic? Safe Haven Set To Close The Week In Negative Territory
The most interesting fact is that in this tumultuous week where the equity markets have been battered badly and all the major global indices such as the Dow Jones, the FTSE 100, the DAX, the Nikkei, the Hang Seng have all entered in correction territory—a drop of more than 10% from their all-time high—the gold price is set to close the week in negative territory.
This confirms our earlier view that markets are overreacting to coronavirus. The world isn’t going to be pushed in a major recession just because of coronavirus. Yes, we are going to see slow in global growth because the global supply chain has been disrupted—and it will impact the demand as well—the spillover effect. But, this doesn’t mean that the world is coming to an end as it is portrayed by the media.
The Sell-off Is Healthy
The sell-off in the equity markets is really healthy in my opinion. We have seen unprecedented bull rally and bears have been waiting for any kind of excuse to push markets in correction territory. In our opinion, investors should consider the sell-off as an opportunity because now you have the opportunity the bag some of the top stocks at a much deeper discount than a few months ago. Having said this, there is no need to rush, because we are still nowhere near the bottom because the equity markets are likely to remain jittery for a prolonged period of time. In simple words, this market will be driven by economic data which itself is bound to show some weakness due to Coronavirus.
The Big Question
So the bigger question in front of investors is why is the gold price set to close the week lower despite this pandemic situation? The second question is why Bitcoin's price hasn’t moved despite the fact that it is considered a safe haven.
Default Rate And Gold Price
The reason that we are not seeing the gold price moving higher now is that corporates are still somewhat in good shape. What I mean to say is that Coronavirus hasn’t influenced the corporate default rate yet. It is imperative to keep in mind that cheap money has increased the debt levels across the world among corporates, and if the disruption in the supply chain really inserts heavy pressure on corporates, then we could see the default rate ticking higher. The domino effect at that stage could raise some serious alarms, and only then we could see the central bankers providing their support. Once that is triggered, we could see the gold price roaring and start talking to the moon.For now, I think the trend is going to remain to the upside because the gold price is still set to close the month with solid gains. The uptrend is still intact because the price is trading above the important averages: the 50, 100 and 200 SMA on a daily time frame. After the recent retracement, the gold price may find support and start rising again especially that we are going to see mines of the economic number next week.
Why No Reaction For Bitcoin, AKA Safe Haven
As for the Bitcoin price, it is struggling to win its own battle with important price levels—the 50, 100 and 200-day SMA. Speaking from a fundamental perspective, we have not seen any evidence of Bitcoin’s price having any sort of connection with the ongoing pandemic situation. Bitcoin’s price is likely to react more if we see the monetary policies going off the rails. After all, the major fundamental of Bitcoin’s price questions the traditional monetary policy. Bitcoin believers do not believe in central monetary policy and they have their own reservations about the manipulation of the currency by central banks.
So until and unless we see some chaos created by the central banks and it threats the dollar, we aren’t likely to see the bitcoin price exploding above the all-time high. One possible scenario which may lead to this is that if central banks start to provide their support by lowering the interest rates again, and this useless pill doesn’t cure the situation. Then, we could see some serious potential for the bitcoin price. Another reason that we have not seen the Bitcoin price moving higher because of Coronavirus is that we are not seeing a situation where a certain government is controlled by a major superpower, and by that I mean sanctions. Whenever we see restrictions on one country imposed by a stronger country or countries then we do see a surge in Bitcoin’s price. After all, the crypto king, Bitcoin has the reputation to bypass all the sanctions and produce the same results which the national currencies can.