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
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Will Great Unlock Push Gold Prices Down?

Commodities / Gold & Silver 2020 Jun 08, 2020 - 01:17 PM GMT

By: Arkadiusz_Sieron

Commodities

As Great Lockdown was positive for the gold prices, the Great Unlock will be bad, right? We invite you to read our today’s article about the Great Unlock and find out whether it really must be negative for the gold prices.

It’s all government’s fault, right? After all, the Great Lockdown was introduced by the federal and state governments introduced, wasn’t? Well, not quite.

Before I will explain why, let me clear one thing up: I’m a liberty lover and I’m skeptical about the government regulations. And the economic shutdown was obviously untenable – the only reason to shut down the economy was to buy some time to prepare the healthcare system for better handling of the epidemic. So, it’s good that the Great Lockdown is ending.


However, the truth is that the economic shutdown was only partially triggered by the government. While in part it was caused by the bottom-up actions of millions of people who were afraid for their health. Indeed, the data shows that many residents essentially began imposing a lockdown on themselves before their government did. For example, the electricity usage indicates that people became homebodies well before they were required to do so. Similarly, the NBER working paper written by Felipe L. Rojas and others writes:

most of the economic disruption was driven by the health shock itself. Put differently, it appears that the labor market slowdown was due primarily to a nationwide response to evolving epidemiological conditions and that individual state policies and own epidemiologic situations have had a comparatively modest effect.

Many employers sent their employees home long before any official measures. Many workers reduced their labor supply, while many consumers reduced their shopping activity long before any national or state restrictions. Americans and other nations did not need their governments to tell them to stay home, they all saw what was happening in Italy. People are not stupid, and they are not like sheep who meekly await the orders of their governmental shepherd. So as Jonathan Key noticed in his excellent Quillette story:

much of the lockdown effect was imposed not by top-down fiat, but through millions of small decisions made every day by civic groups, employers, unions, trade associations, school boards and, most importantly, ordinary people.

OK, but why are we writing about this? Well, just as many people blame the governments for the economic shutdown, they also hope that the end of the Great Lockdown will quickly revive economic growth. Unfortunately, these hopes are unfounded. The government decrees do not work as a sort of magic wand that first knocked the economy to its knees but now it will bring it to life.

What does it mean? There will be no V-shaped recovery. Just deal with it. People are afraid – rightly or not – of the new coronavirus. Yes, the mortality rate is not high, but it is several times higher than in case of influenza. And even if it kills only a small percentage of infected people, it can cause serious long-term health complications such as lung scarring, heart damage, lower testosterone level in men, and neurological and mental health effects.

So, it should not be surprising that customers won’t rush to shopping malls, cinemas and restaurants after the Great Unlock. The uncertainty and fear will remain for some time, perhaps even until the arrival of an effective treatment or a vaccine. As a consequence, many shops and restaurants will not reopen after the strict shutdown ends. As a reminder, the restaurant industry itself accounts for about 16 million US jobs.

And some changes in the labor market will also have permanent effects. As Victoria Gregory and others in another NBER working paper show, the pandemic will “have long-lasting negative effects on unemployment. This is so because the lockdown disproportionately disrupts the employment of workers who need years to find stable jobs.” The conclusion is clear: the economy will not quickly return to the pre-pandemic state and trajectory.

What does it mean for the gold market? The lack of V-shaped recovery is good news for gold. The persistent uncertainty and fear should support the safe-haven demand for gold. The weaker than expected recovery will cause the Fed and Treasury to maintain their dovish monetary and fiscal policies, which should also be positive for the yellow metal. To be clear, we do not claim that gold prices will necessarily rally like crazy. Rather, we argue that the Great Unlock does not have to be very negative for the yellow prices, because it will not be a reverse of the Great Lockdown, and the return to normalcy will be only gradual.

Chart 1: Gold prices (London P.M. Fix) from January 2 to June 1, 2020

Indeed, as the chart above shows, the easing of government regulations did not send gold prices down. Actually, gold moved further north in May. And the fundamental outlook for gold – which includes low real interest rates, elevated uncertainty, dovish Fed and mammoth fiscal deficits – should remain positive.

Thank you.

If you enjoyed the above analysis and would you like to know more about the gold ETFs and their impact on gold price, we invite you to read the April 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

Disclaimer

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 http://www.MarketOracle.co.uk - 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