Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
AI Stocks Portfolio and Tesla - 23rd May 24
All That Glitters Isn't Gold: Silver Has Outperformed Gold During This Gold Bull Run - 23rd May 24
Gold and Silver Expose Stock Market’s Phony Gains - 23rd May 24
S&P 500 Cyclical Relative Performance: Stocks Nearing Fully Valued - 23rd May 24
Nvidia NVDA Stock Earnings Rumble After Hours - 22nd May 24
Stock Market Trend Forecasts for 2024 and 2025 - 21st May 24
Silver Price Forecast: Trumpeting the Jubilee | Sovereign Debt Defaults - 21st May 24
Bitcoin Bull Market Bubble MANIA Rug Pulls 2024! - 19th May 24
Important Economic And Geopolitical Questions And Their Answers! - 19th May 24
Pakistan UN Ambassador Grows Some Balls Accuses Israel of Being Like Nazi Germany - 19th May 24
Could We See $27,000 Gold? - 19th May 24
Gold Mining Stocks Fundamentals - 19th May 24
The Gold and Silver Ship Will Set Sail! - 19th May 24
Micro Strategy Bubble Mania - 10th May 24
Biden's Bureau of Labor Statistics is Cooking Jobs Reports - 10th May 24
Bitcoin Price Swings Analysis - 9th May 24
Could Chinese Gold Be the Straw That Breaks the Dollar's Back? - 9th May 24
The Federal Reserve Is Broke! - 9th May 24
The Elliott Wave Crash Course - 9th May 24
Psychologically Prepared for Bitcoin Bull Market Bubble MANIA Rug Pull Corrections 2024 - 8th May 24
Why You Should Pay Attention to This Time-Tested Stock Market Indicator Now - 8th May 24
Copper: The India Factor - 8th May 24
Gold 2008 and 2022 All Over Again? Stocks, USDX - 8th May 24
Holocaust Survivor States Israel is Like Nazi Germany, The Fourth Reich - 8th May 24
Fourth Reich Invades Rafah Concentration Camp To Kill Palestinian Children - 8th May 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Global Shutdown and Gold

Commodities / Gold & Silver 2020 Apr 11, 2020 - 05:00 PM GMT

By: Arkadiusz_Sieron


Have you read Ayn Rand’s novel Atlas Shrugged? The main theme of the book is that – overwhelmed by growing statism – entrepreneurs at one point say finally “basta!” and announce a strike. The symbolic Atlas who carries the world, shrugs. As a result, the economy collapses, plunging the world into chaos. This what we are observing right now – the only difference is that Atlas has not shrugged but got infected. But the result is the same. The economy freezes. We invite you thus to read our today’s article and find out what does the global shutdown implies for the global economy and the gold market!

Have you read Ayn Rand’s novel Atlas Shrugged? The main theme of the book is that – overwhelmed by growing statism – entrepreneurs at one point say finally “basta!” and announce a strike. They disappear, leaving their businesses to their fate. The symbolic Atlas who carries the world, shrugs. As a result, the economy collapses, plunging the world into chaos.

This what we are observing right now. The workers do not go to work. Shopping malls are closed. Restaurateurs shut down their premises. Theatres, cinemas, gyms, swimming pools – they all are out of service. Other companies reduce their activities or even go dormant. The global economy freezes. The only difference from the Rand’s novel that it is not because of the strike but because of a self-defense effort. People want to protect themselves and others against a contagious pathogen. But the result is the same. The collapse of the economy.

The irony of the situation is that no one – including central banks with their easy monetary policy and governments with their fiscal packages – can do anything about it. This is because this is a health crisis. And the only way to win the battle with the coronavirus is social distancing and quarantine. Recession is actually not something we should cry about. We could avoid it, simply letting billions get infected and millions die. The economic lockdown is our only weapon – unless scientists develop a drug or a vaccine – against the pathogen. In a way, this sounds really heroic: we shut down the economy to protect people, especially elderly, from the invisible enemy. However, poetry is beautiful but can be very expensive – the costs of the shutdown are astronomical, trillion dollars per month.

Nobody knows for sure how deep the recession will be as it depends on how the epidemic will evolve (and how the governments respond) – and no one, not even epidemiologists among themselves, cannot determine it with certainty. Goldman Sachs expects the world’s real GDP to be 1.25 percent, a half of 2.5 percent considered a border line of a global recession. The IHS Markit is more pessimistic and expects only 0.7 percent growth for the world economy.

And what about the US? The IHS Markit thinks that the American GDP will fall by 0.2 percent in the whole 2020. Goldman Sachs is more pessimistic here: it says that the US GDP will shrink 24 percent in the Q2, which would be 2.5 times bigger than any decline in history, and 3.8 percent for the full 2020.

But all these forecasts might be still too optimistic. After all, the initial figures from China for January and February were much worse than feared. As the chart below shows, in these two months combined, industrial production fell 13.5 percent, well below of expectations of a 3.0 percent decline. Retail sales plunged 20.5 percent, also below expectations of a 4.0 percent contraction. And fixed asset investment collapsed 24.5 percent, much more than anyone thought.

Chart 1: Industrial production in China from March 2019 to January-February 2020

Yes, China imposed more draconian measures than other countries, locking down whole cities and regions. But thanks to these, it has said it already contained the epidemic and would thus enjoy faster recovery than others. Anyhow, a massive negative shock in China in Q1, followed by economic shutdown in Europe, the US and other countries will make this year’s performance the weakest since the Great Recession or even the Great Depression.

Importantly, the chances of a V-shaped recovery – a sharp decline following by an equally strong rebound – are getting lower. Instead, we should expect a U-shaped recovery or even – in some sectors – a L-shaped recovery, which means that we could stay in recessionary territory longer while the recovery will be weaker. This is because we are still several weeks before the epidemiological peak, so the shutdown will last for quite a while. Some companies will go bankrupt and not reopen after the end of epidemic. And consumers do not have to be willing to resume immediately spending and businesses hiring and investments as there might be the second wave of infections, especially if the social distancing and quarantine won’t work its magic.

Another issue is that all hidden problems that were invisible during the economic expansion and bull market – think about excessive indebtedness and zombie companies – will emerge to the surface and further deepen the recession.

What does it all mean for the gold market? Well, from the fundamental perspective, the gold bulls can open champagne. Unless the antiviral drug or vaccine is developed quickly and in a responsible way, the recession will be more severe than most people realize. And the recovery will come later and would be weaker than many analysts think, especially if the debt problem reemerges. Turning off the economy and turning it back on again is not a piece of cake – it’s more like restarting a nuclear reactor. It’s very easy to make a catastrophic mistake here – unfortunately, some countries will commit some kind of error along the way. It times of such a grave crisis, gold should eventually shine.

Thank you.

If you enjoyed the above analysis and would you like to know more about the link between the U.S. economy and the gold market, we invite you to read the August Market Overview report. If you're interested in the detailed price analysis and price projections with targets, we invite you to sign up for our Gold & Silver Trading Alerts . If you're not ready to subscribe at this time, we invite you to sign up for our gold newsletter and stay up-to-date with our latest free articles. It's free and you can unsubscribe anytime.

Arkadiusz Sieron

Sunshine Profits‘ Market Overview Editor


All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Arkadiusz Sieron Archive

© 2005-2022 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in