The coronavirus (COVID-19) epidemic remains a global pandemic threat with increases in confirmed cases, deaths, and permanently seeded countries as clusters of onward progression multiply and threaten global supply chains for goods and services. The impact on the U.S. must be watched closely because any loss of containment on U.S. soil will tip the scale on whether or not the world views the U.S. as the best kid on the block for capital inflows. The stock market will remain relatively stable with the Fed’s accommodative monetary policy and our sovereign debt will still be attractive if nominal and real interest rates stay at zero-bound or above. A loss of confidence in our economy or sovereign debt will push the stock market into a heightened state of volatility.

Any hint that the coronavirus is reaching epidemic proportions on U.S. soil will likely force the Fed’s hand to pursue more aggressive REPO operations and/or quantitative easing (QE), which could push real interest rates below zero and possibly deter foreign capital inflows that help prop up the stock market and sovereign debt. What may offset any decrease in purchases of our debt is domestic safe-haven demand. The fear factor associated with coronavirus running wild on U.S. soil would negatively influence consumer spending, and that is the last leg holding up the economy.

Powell says Fed will aggressively use QE to fight next economic downturn… “Jerome Powell said Wednesday the central bank would fight the next economic downturn by buying large amounts of government debt to drive down long-term interest rates, a strategy that has been dubbed quantitative easing, or QE. In testimony before the Senate Banking Committee, Powell said the Fed had two recession-fighting tools; buying government bonds, known as QE, and communicating clearly with markets about interest-rate policy.” – MarketWatch, Feb. 12

 

U.S. consumer spending slowing; industrial production weak… “U.S. consumer spending slowed further in January, with sales at clothing stores declining by the most since 2009… Consumer spending accounts for more than two-thirds of U.S. economic activity… The slowdown in consumer spending, together with a deepening downturn in business investment and weak manufacturing cast a shadow on the longest economic expansion on record, now in its 11th year. The economy also facing risks from the deadly coronavirus, which has prompted economists to downgrade their growth estimates for the Chinese economy.” – Investing.com, Feb. 14

 

There is a Wall of Cash Eager to Buy Treasuries on Any Price Dip… “Investors overseeing trillions of dollars are plowing money into U.S. government debt like never before, in a wave that’s only gaining strength as the spreading coronavirus casts doubt on the global growth outlook. Evidence of the insatiable demand can be found across the fixed-income universe. Pensions, which have been ramping up bond allocations for more than a decade after a change in regulations, now hold a record amount of longer-dated Treasuries. Bond mutual funds saw a historic inflow of money last year with no sign of a slowdown. Even hedge funds have piled in. The wall of cash is a boon to American taxpayers as the federal deficit swells. It is keeping Treasury yields, a benchmark for global borrowing, near all-time lows. With buyers ready to pounce, even surging stocks, record auction sizes and the tightest labor market since the 1960s can barely make a dent in bond prices.” – Bloomberg, Feb. 16

Another key factor that can influence Fed policy in the near-term is if the trade war with Europe escalates further on concerns over Huawei’s 5G-network expansion as headwinds due to the coronavirus emerge and affect global supply chains. The scuffle with Europe over tariffs last year coincided with the Fed lowering interest rates.

Washington increases tariffs on aircraft after EU subsidy row… “The dispute over subsidies to aircraft makers has escalated, with Washington imposing a higher tariff on Airbus and airplane parts from the EU. It will go up from 10% to 15% next month, while most other tariffs on EU exports to America, on a range of goods, standing at 25%, are retained.” – BBC, Feb. 15

For all of the financial pundits who think everything is awesome in the world, why are gold prices at seven-year highs and central banks’ continue to buy gold hand over fist since 2010? The gold/euro, gold/yuan, gold/swiss, and gold/yen currency crosses are breaking out to new highs while gold/USD is only a few hundred dollars away from tapping its all-time high. Do you remember when the U.S. stock market rallied at the turn of the century and the price of gold was $300 per ounce? The Bank of England infamously unloaded its sovereign gold reserves between 1999 and 2002 because they were confident that gold was no longer a safe-haven asset vs. fiat currency. Those days are long gone.

“When critics say gold production does not support world growth, what they really mean is that gold production does not support inflationary growth. This is true. Inflation transfers wealth from rich to poor, from savers to debtors, and from citizens to government.” – James Rickards

• The new coronavirus threatens a meltdown in China’s economy – SCMP
• Big companies in for supply-chain shock – Economist
• Senate Attacks Judy Shelton For Being Outside The Mainstream – Mises Institute
• Gold/Dollar Inverse Correlation Weakens Due To Coronavirus – Confounded Interest
• Perth Mint Gold & Silver Bullion Sales Soar in 2019 – CoinNews
• Ghana: Bank of Ghana to Start Buying Gold Locally to Shore Up Reserves – AllAfrica
• For Safe Havens, We Want Monetary, Not Just Precious Metals – LouisJames
• Turkish Mint Outpaces U.S. Mint – Voima
• Gold vs. Treasuries: Which is a better hedge against a market crash? – ValueWalk
• The relevance of gold as a strategic asset – World Gold Council

The seasonality pattern for gold to rise has coincided with numerous geopolitical events and the coronavirus outbreak. Gold is currently in a spot where it typically makes a run before early spring doldrums take hold. The window of opportunity remains open as gold is approaching an important resistance level just shy of its January $1,611 high.

To view a larger version of the following charts, right-click on it and choose your “view image” option.

Gold weekly chart as of Jan. 27, 2020 and daily chart as of the Feb. 14 close…

Excerpt from the Jan. 27 weekly chart analysis:

“The $1,620 and $1,697 laterals originate from the choppy price action between the $1,920 high in 2011 and downside breach of $1,522 in 2013… The price remains stable at $1,580 while typing this analysis. Despite brief episodes of overbought conditions since Jan. 7, all indicators and studies on the weekly chart remain bullish with an intact uptrend. All moving averages are lined up under the price action, as the Golden Cross has done its job since Feb. 2019 and shows no sign of reverting anytime soon… I remain bullish long-term but cautious in the near-term until the $1,611 high on the Plunger Candle (aka Shooting Star) is taken out with conviction and without hesitation.”

Excerpt from the Feb. 5 daily chart analysis:

“Gold is performing well in USD by conserving capital as a safe haven while the U.S. stock market experiences extreme volatility and precarious events unfold around the world. Today’s daily chart highlights a V-Top or potential V-Top Extended pattern since the Plunger Candle printed on Jan. 7. It was only a couple of days prior to the coronavirus creeping into mainstream media headlines that I appeared on Dr. Dave Janda’s Operation Freedom live radio broadcast and suggested that there would be additional chops in gold’s price action before $1,611 is revisited. The $1,586 Fibonacci level has turned out to be a substantial resistance area. From a big picture point of view, it appears that a Measured Move Up is taking shape that originates from the May 2019 low.”

Since the high in January at $1,611, the price action has consolidated and morphed into a Symmetrical Triangle pattern. The topside trendline was challenged at Friday’s close and the potential exists for a run to the January high and a visit to the next bus stop at $1,620. As I type this commentary on Sunday evening, the price is holding steady on the trendline at $1,583 and is just shy of the $1,586 Fibonacci level. U.S. markets will be closed during market hours on Monday for Presidents’ Day and several economic reports will be published this week that may influence the price, but coronavirus reports and fear could trump any economic data that is perceived as bullish for the stock market.

All of the moving averages remain below the price action, the DMI-ADX is trending positive with a potential Alligator Tongue setup taking shape, and the StochRSI  has began trending upward. The negatives are that Momentum and Money Flow only show a slight upturn and the buy volume did not increase along with the rally in price over the last eight days. Overall, the chart is bullish long-term, but I remain cautious near-term until $1,611 is breached without hesitation.

Rare look inside Bank of England’s gold vaults – BBC News

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