In the capital markets, the term “black swan” is not to be taken lightly, unless you're a bullish gold trader--then it's time to get heavy on precious metals. The coronavirus is putting a mixed martial arts-like stranglehold on the markets and if it turns into a black swan event in China or other parts of the world, it could spark a gold rally.
“For gold really to move, it would be some kind of exogenous shock, which might push it higher,” Rhona O’Connell, INTL FCStone head of market analysis for EMEA and Asia Regions, told Kitco News.
Gold has been mired in a range-bound price movement, currently standing at about $1,580 per ounce. However, a black swan event could break break gold prices free.
Global stock markets are being boosted by the Fed’s pledge Monday that it will run an open-ended asset purchase program amid the global coronavirus outbreak.
The central bank said the program will run in the “amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy.”
The pledge is a new chapter in the Fed’s “money printing” as it commits to keep expanding its balance sheet as necessary, rather than a commitment to a set amount.
Shares in Asia jumped in Tuesday afternoon trade in reaction to the Fed, with shares in Japan and South Korea leading gains among the region’s major markets.
Federal Reserve Chairman Jerome Powell's whatever-it-takes moment arrived Monday.
The central bank signaled it would do practically anything -- extending loans to big and small businesses and purchasing unlimited amounts of government debt -- to help an American economy in a race against time.
After firing its arsenal at funding markets last week to prevent a public health crisis from morphing into a financial crisis, the Fed said it would throw another kitchen sink this week at credit markets that have broken down. The central bank unveiled a new generation of lending facilities to prevent a liquidity crunch from turning into a solvency crisis for American businesses.
"This is the first time they've really basically turned into a commercial bank instead of a central bank," said Michael Feroli, chief U.S. economist at JPMorgan.
The central bank's announcement came as lawmakers on Capitol Hill debated a plan to help reload the Fed's weaponry. The Trump administration and Senate Republicans proposed Sunday providing $425 billion to the U.S. Treasury that could be used to expand the kind of lending programs the Fed unveiled Monday. The bill hit a procedural roadblock after Democrats said it needed to do more to aid individuals facing unemployment or lack of income.
Monday's announcement was "really encouraging because the Fed didn't wait for Congress to pass this bill," said Tiffany Wilding, economist at Pacific Investment Management Co. "I don't think the markets could have waited."
The central bank punctuated its moves, announced 90 minutes before markets in the U.S. opened Monday, with an unusually explicit warning about the perils ahead.
"It has become clear that our economy will face severe disruptions," the Fed said in its statement Monday morning. "Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions abate."
Rising U.S. coronavirus cases raise questions about speed of economic recovery
On Thursday all three indexes saw their sharpest one-day drops since March 16. The S&P 500 and the Dow finished at their lowest levels since May 26, while the Nasdaq ended at its lowest since May 29, according to Dow Jones Market Data.
For the week, the Dow lost 5.55%, the S&P 500 fell 4.8%, and the Nasdaq was off 2.33%.
Some analysts characterize the rebound Friday from Thursday’s slump as unlikely to be sustainable.
Investors are assessing the state of the stock-market’s 10-week rally, a day after equity indexes registered a bruising decline prompted by fears of a resurgence in the coronavirus pandemic in the U.S. and a bleak economic outlook from the head of the Federal Reserve.
Indeed, the International Monetary Fund’s Gita Gopinath said that the global economy is recovering more slowly than expected and faces “significant scarring,” Bloomberg News reported. In a video released Friday but recorded June 4, Gopinath said the IMF will release updated growth projections on June 24 that will likely be worse than April projections for a global contraction of 3%, if the disease lingers.
Fears of an emerging second wave of the epidemic in the U.S. persist, with half a dozen states, including Texas and Arizona, facing rising infections of COVID-19. Arizona, Utah and New Mexico all posted rises in new cases of 40% or higher, while Florida, Arkansas, South Carolina and North Carolina saw cases rise by more than 30% for the week ended June 7, on a rolling seven-day basis, according to Reuters.
Richmond Federal Reserve Bank President Tom Barkin on Friday, during a webcast panel discussion sponsored by the Virginia Tech Office of Economic Development, said that the pandemic could have effects that last beyond the next couple of months and cautioned that some of the millions of jobs that have been lost during the viral outbreak may never return, echoing similar remarks made by Fed Chairman Jerome Powell on Wednesday. 5D15min__
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