Gold prices slide again as Coronavirus prompts cash raising concerns. It is the latest in a series of real and perceived threats to the price of gold. The troubling news comes just days after the United States mint stopped selling gold bullion, a move that could prolong the slide.
While it is difficult to imagine how it could be attributed to a virus, investors question whether the Coronavirus outbreak has had any effect on the gold market. In other words, is there truly a worry that the virus may impact a high volume of trade? And if so, how big of a factor is the virus?
The number one suspect has to be the outbreak of the WannaCry ransomware which is the main culprit behind the Coronavirus outbreak. It can quickly infect a computer, locking out access to data and files until the data is returned. This becomes even more dangerous, since it’s well known that a virus can take down critical applications and cause significant performance issues. Plus, it’s really easy to create as long as you know what you’re doing.
The danger arises from a company called Crypto Contract which sells memory encryption software to help protect against such threats. It would be easy to assume that the software is effective at keeping the virus at bay but as technology advances, so does the virus so as you can see, it is a double-edged sword.
It may not be prudent to place a stock or ETF in a stock or ETF that spikes in prices following a large spike in price just like that. That being said, if you do invest in stocks, ETFs, bonds, and gold, don’t make an investment based solely on the gold price. That being said, there are two signs to watch for when purchasing gold.
The first sign is price volatility. High volatility tends to indicate a volatile gold price. So when the price of gold shoots up higher than all previous highs and drops lower than all previous lows, it is important to take a closer look at the underlying market and take the necessary steps to protect your portfolio.
The second sign to watch for is a price spike. High price spikes tend to indicate a strong bull market. When the price of gold rises above a pre-determined benchmark amount, the market takes notice, anticipating this news to have an immediate effect on the market and consequently affects the price of gold in the marketplace.
Following high price spikes, the price of gold usually shoots higher again once the news is released. Gold prices usually tend to rebound after the news is released which causes investors to look to gold as a safe haven investment. The market reacts and changes with news.
Still, investors are wary about placing their entire portfolio on the reactions of the market following the Coronavirus news as the market is always volatile. Once the market believes the news to be true, it tends to follow the market. This may account for a drop in the price of gold.
The big question then becomes, do these reactions and responses from the market account for the actual increase in gold prices? Or is it the people selling on the market who have responded to the news?
The market does react to events, whether they are positive or negative, but that doesn’t necessarily mean the gold prices will rise or fall. As with anything else, you can assume that when you buy on the news, it is because you believe the news is good for the gold market.
It is important to remember that when you buy on the news, you are getting news not about the gold market but about the market as a whole. Not every news story is a winner or a loser in the market.