A Coronavirus Black Swan Event Could Spark Gold Rally

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.

“Such events are, by definition, difficult to predict, but we can think of a few possibilities,” said Capital Economics head of Global Economics Service Jennifer McKeown and assistant economist Bethany Beckett. We have long warned about risks to the Chinese property sector, related particularly to high levels of debt. Sales have already ground to a halt and, if they fail to pick up soon, the resulting pressure on property firms could trigger a wave of defaults,” the economists said on Friday.

“A collapse in the Chinese property market would have direct ramifications for commodity exporters, including Australia and Brazil. But it might also spark a more general increase in risk aversion and associated financial market disturbance,” they added.

Right now, from a technical standpoint, gold is trying to break the $1,600 ceiling, which is an encouraging sign to analysts.

“Anything that takes us above $1,585 is bullish and could get us to $1,600,” Gainesville Coins precious metals expert Everett Millman told Kitco News. “Really, it is just building up safe-haven demand that hasn’t broken that dam yet, but it is still there.”

Getting Gold Exposure Via ETFs

Investors looking to get in on gold can look at funds like SPDR Gold Shares (NYSEArca: GLD) and the SPDR Gold MiniShares (NYSEArca: GLDM). Precious metals like gold offer investors an alternative to diversify their holdings, and like other commodities, gold will march to the beat of its own drum compared to the broader market.

Traders looking for leverage can use funds like the Direxion Daily Gold Miners Bull 3X ETF (NYSEArca: NUGT), VanEck Vectors Gold Miners (NYSEArca: GDX) and the Direxion Daily Jr Gold Miners Bull 3X ETF (NYSEArca: JNUG).

For more market trends, visit ETF Trends.