Sub heading 1: Gold
Gold has traditionally been considered a safe haven during times of high volatility and crisis, an aspect I have covered in several other newsletters. Unfortunately, the lockdowns occurring globally have now affected the value of gold rather dramatically, it is estimated that somewhere in the realm of 70% of physical gold mined is refined locally in Switzerland.
Of the refineries within Switzerland 60% of them are located very close to the border of Italy and happen to be the regions of Switzerland with the highest infection rate of coronavirus. The refineries that have been affected by the lockdown on non-essential services, will remain closed until sometime in April pending no further developments and the slowdown of infection.
It is worth noting that spot gold prices and gold futures are diverging from one another, physical gold prices are rising faster than spot prices due to the refineries side of things but additionally the social distancing and supply chain interruptions. There is plenty of physical gold around it’s just not in the right place for people to take delivery on futures, hence the divergence in prices.
My thoughts on purchasing physical gold are that if you didn’t do it before it is very much likely to late now.
Australia has moved to stage 2 lockdown; Prime Minister Scott Morrison addressed the nation last night and has left a lot of Australians confused on what is and isn’t locked down. Many of the aspects that have been suggested are contradictory for example: weddings must limit the total number of attendees to 5 including the couple and witnesses, while at the same time schools must remain open? I understand the concepts that schools need to remain open for essential services such as nurses, but is a school not a human petri dish at this stage?
Regardless the impacts from a half measure lockdown and not the full thing are troubling for the economy, delaying the inevitable full-scale lockdown. At this stage it is within my expectations that at some stage in the next week or two we will likely see a militarised lockdown like the UK. Shutting down the country will no doubt have extreme ramifications on price, but the fallout and impact should be lesser than a series of lesser measures, a rising infection rate and eventually a much harsher recession.
I expect that we will see the AUDUSD fall in the coming weeks especially when we begin seeing data for the March Purchasing Managers Index, Consumer Price Index and the core retail sales figures.
Subheading 3: Trump and the US
What is more important to you? Money or your health? It’s a straightforward question with a straightforward answer, in my mind it should always be health over money as an obvious equation. President Donald Trump has answered this question for the American public: he values the economy and GDP growth more than the health and safety and ultimately the American public’s lives.
Trump has announced that they he will be aiming to end lock downs in the coming weeks likely just after the Easter break. While the shutdown will obviously impact the US economy, but again just like the Australian situation which is a lesser evil? Shutdown hard save lives or be soft on the lockdown and save profits. To me this really shouldn’t be a tough decision, I understand that lively hoods will be affected, but from what I am seeing in Australia that is already the case.