Investing

Gold Safe-Haven Hedge Investment To Chinese and Global Economic Aftermath Of The Wuhan Chaos

The Golden Investor expects further infections will increase the chaos the virus is causing. The SARS epidemic at the beginning of this century caused an indent in Chinese BBP of 1 percent. Oil prices have been going down on the continuing worsening of the Chinese situation. Through all this tumult one asset has been behaving steadily: Gold.

Although The Golden Investor is known for its preference of holding gold stock due to bad central bank policy for last decade. Gold is the perfect hedge against volatility on the stock market coming weeks. At the start of this Wuhan epidemic oil prices tumbled, investors reacted on a possible setback of demand by China. As oil prices drop, inflation tends to drop too, and since gold is used as hedge against inflation gold prices dropped too. But after it became clear that this situation would last longer than was clear at first sight, a comparable or even worse SARS scenario is likely to happen. In the graph below by the Institute of Medicine (US) shows the economic impact of the 2002 SARS outbreak.

The Golden Investor is expecting a major outbreak with more than 100.000 infected people occurring within weeks. Looking at the current trend this is inevitable, stock markets are fearful but underestimate the explosive bomb which this outbreak lays under the already slowing down economy. The current trade war tariffs were already pressuring the Chinese economy and with China being more important than ever in the global economy a setback like this means serious trouble for the global economy.

Before the outbreak influential and big investors like Ray Dalio were already pointing at a possible setback due to central bank policy last decade. His advice, hold a part of your assets in gold. Since mid-december gold has risen almost $100 dollars from $1480 to $1580 with a spike at $1611 due to the Middle East attack and its aftermath. This all adds up to a list of things which will only boost gold prices and stocks in the coming months. E.g.:Trade War tarrifs, possible further Iran actions on oil targets (or worse), ultra low interest rates, central banks without ammunition, temporary Chinese economic (and possible global) setback, high real estate prices and its consequences on consumer demand, Deutsche Bank troubles, this all has a boosting effect on gold prices. The greater the fear, the greater the gold bull case.

Bibliography

1) Knobler S, Mahmoud A, Lemon S, et al. (2004). Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Institute of Medicine (US) Forum on Microbial Threats; Washington (DC). National Academies Press (US).

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