We all fear the second wave of infections. But the U.S. hasn't even controlled the first one! Bad news for Americans, but good news for gold.

Please take a look at the chart below. As you can see, the epidemiological situation in the United States does not look well. The number of new daily confirmed Covid-19 cases has been rising again since mid-June, which means that coronavirus is far from being contained. Actually, the number of new cases has almost reached a new record level!

Sadly, the number of daily deaths has also increased recently, as the chart below shows. The spike resulted from the change in methodology, but even without it, the downward trend has probably ended. Luckily, as now young people are mostly among the newly infected, the case fatality rate could be lower than in April.

Who could suppose that hasty reopening of economies without proper testing and contact tracing, and mass riots could cause the second wave of infections? Actually, this is what I was afraid of. At the beginning of June, I wrote:

the mass protests during the pandemic is, um, well, not something what epidemiologists dream of. You don't have to be a scientist to deduce that big demonstrations and large gatherings - and many protesters do not even wear masks - could accelerate the viral spread and increase the chances of the second wave of infections, or at least, hamper the deceleration of the epidemic.

I mentioned today the second wage of infections. But actually America does not deal with the second wave. The U.S. could not even cope with the first wave! And, oh, just as a reminder, we are talking about the wealthiest country in the world!

The charts above present nationwide data. But situation in certain states is actually much worse. The number of new cases and hospitalizations are quickly accelerating in several states, which is going to be problematic for the economy and the markets. For example, Texas halted its reopening because of the resurgence of Covid-19 infections and hospitalizations.

Meanwhile, in New York, Governor Andrew Cuomo introduced quarantine for everyone coming from eight states suffering from the most intense resurgence of the coronavirus - Alabama, Arizona, Arkansas, Florida, North Carolina, South Carolina, Texas and Utah - and delayed the reopening of malls, gyms, and cinemas.

Moreover, some companies either has closed their stores (like Apple in Houston) or delayed the reopening of their premises (like Disney and its theme parks in California). Such actions hit, of course, the economy. For example, the U.S. economic recovery tracker developed by Oxford Economics showed a small deterioration in the week ending June 12 after 10 weeks of improvement. Hence, after a strong initial phase of recovery, we could enter a period of slower phase, or even a reversal, if the recent resurgence of Covid-19 infections accelerates and gets out of control.

Implications for Gold

What does it all mean for the gold market? Well, the longer and more severe the pandemic, the better for gold. The resurgence of infections implies the delayed rewind of the Great Lockdown. The more delayed the full economic unlock, the slower the recovery. Moreover, the accelerated spread of the coronavirus could trigger the reimplementation of lockdowns or other containment measures. In such a scenario, another stock market crash is likely. Gold could benefit then at the expense of risky assets. But the fire sale of equities could also pull gold down, at least initially. Another downward risk for the gold market is the strengthening U.S. dollar when turmoil hits. On Thursday, the greenback appreciated, while the price of the yellow metal declined. However, over the longer run, it seems that gold will remain an attractive safe haven for investors (and it can even gain more value) until the pandemic is over and the global economy recovers fully.

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Arkadiusz Sieron, PhD
Sunshine Profits: Analysis. Care. Profits.

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Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our Gold & Silver Trading Alerts.