The coronavirus is having an effect on gold prices and equities. The coronavirus’ effect on gold prices has been positive as investors flee to the safe-haven asset to escape the plunge in the equity market. Concerns about economic growth are starting to spread as analysts try to calm investors with comparisons to the SARS outbreak in 2003. However, as the coronavirus spreads, any comparisons to SARS are starting to make things look far worse as the outbreak is now worse than the SARS epidemic.
Due at least in part to the coronavirus‘ effect, the gold price touched $1,585 per ounce on Thursday. The yellow metal reached a three-week high on Monday ahead of a small decline on Tuesday.
As the coronavirus effect boosts gold prices, equity prices are moving in the opposite direction. This week has seen the biggest selloff in the stock market since October as every major stock index tumbled on Monday. Tuesday and Wednesday were better for stocks, but Thursday has brought a resumption of the decline in equities.
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The Dow Jones Industrial Average and the S&P 500 are both down by over 1% for the week, and the Nasdaq is down almost 1%. The S&P and Dow are tracking toward their first back-to-back weekly declines since October when both indices slid for three consecutive weeks.
Analysts Try To Calm Investors’ Fears With SARS Comparisons
The U.S. reported its sixth confirmed case of the coronavirus on Thursday. It’s also the first case in the U.S. of the virus spreading from person to person as a woman in Chicago apparently infected her husband with the disease. Officials are now contacting others in the community who may have come into contact with her to screen them for the virus.
The number of global cases of the coronavirus topped 8,200 on Thursday, of which about 8,100 are in China. The death toll has now risen past 170. That officially makes this latest virus worse than the SARS epidemic, which lasted from November 2002 to July 2003. However, analysts have been looking at numbers related to the SARS outbreak for clues on what we might be able to expect from the coronavirus outbreak.
Societe Generale analyst Wei Yao said in a note this week that mainland China had 5,328 confirmed cases of SARS with 348 deaths. The epidemic had a negative impact of about 2 percentage points on China’s real GDP growth in the second quarter of 2003. SARS affected industrial production, retail sales and trade by significantly reducing social activity and spending. However, ultimately, the disruption was relatively short-lived, and China recovered well in the second half of that year.
The general theme from many analysts is that since the SARS outbreak didn’t have any kind of major impact on the global economy, it’s unlikely that the coronavirus will either.
However, in his “Greed & Fear” report on Thursday, Jefferies analyst Christopher Wood noted that there are some reasons to be more concerned about the coronavirus now. Multiple sources have been saying that the number of cases of the virus is probably much higher than what is being reported officially, and Wood said he first heard about it in mid-December from Chinese internet sources. He believes it suggests the outbreak actually started in November rather than December, as is being widely reported.
He’s also concerned because the number of Chinese who travel outside their home country is up tenfold since the SARS epidemic. The number of Chinese who departed the country climbed from 16.6 million in 2002 to 162 million in 2018.
He did point out one positive about the coronavirus, which is that the mortality rate so far is fairly low at about 2.2%, while the mortality rate of SARS was 9.6%. Further, the coronavirus remains a small risk compared to the flu, which between 290,000 and 650,000 people die of every year, according to World Health Organization numbers.
Wood sees the outbreak as an opportunity for investors to boost their exposure to China while prices are cheap.