Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
AI Stocks Strength vs Weakness - Why Selling Google or Facebook is a Big Mistake! - 14th Jun 21
The Bitcoin Crime Wave Hits - 14th Jun 21
Gold Time for Consolidation and Lower Volatility - 14th Jun 21
More Banks & Investors Are NOT Believing Fed Propaganda - 14th Jun 21
Market Inflation Bets – Squaring or Not - 14th Jun 21
Is Gold Really an Inflation Hedge? - 14th Jun 21
The FED Holds the Market. How Long Will It Last? - 14th Jun 21
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21
Why Tether USDT, Stable Scam Coins Could COLLAPSE the Crypto Markets - Black Swan 2021 - 6th Jun 21
Stock Market: 4 Tips for Investing in Gold - 6th Jun 21
Apple (AAPL) Summer Correction Stock Trend Analysis - 5th Jun 21
Stock Market Sentiment Speaks: I 'Believe' We Rally Into A June Swoon - 5th Jun 21
Stock Market Russell 2000 After Reaching A Trend Channel High Flags Out - 5th Jun 21
Money Is Cheap, Own Gold - 5th Jun 21
Bitcoin and Ravencoin Cryptos CRASH Bear Market Buying Levels Price Targets - 4th Jun 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Q2 Was Disastrous. But What’s Next for the US Economy – and Gold?

Economics / Coronavirus Depression Oct 09, 2020 - 04:44 PM GMT

By: Arkadiusz_Sieron

Economics The real US GDP plunged with a 31.4 percent annual rate in Q2 of 2020. In that regard, what’s next for the American economy and the gold market?

We all know that the second quarter was disastrous for the US economy. And now, it’s official. Last week, the Bureau of Economic Analysis published the third real GDP estimate in the Q2. According to the report, the real GDP decreased at an annual rate of 31.4 percent (slightly better than the second estimate of 31.7-percent plunge), or 9 percent more from the previous quarter and the second quarter of 2019, as the chart below shows. In other words, the US economy has suffered the sharpest contraction since the government started keeping records in 1947.





Although the report sounds devastating, since it is also terribly old news, nobody really cares, while market players are always future-oriented and focused on a fast recovery. And indeed, the data is encouraging. For example, the consumer Confidence Index has jumped from 86.3 in August to 101.8 in September, which is the highest level since the pandemic started.

Cleveland Fed President Loretta Mester says that the economic recovery is split into the tale of two cities: You have a lot of the economy now where the activity is picking up, but you also have a significant part of the economy - travel, leisure, and hospitality – where a pickup is not visible at all.

Indeed, some data is somewhat discouraging. For example, the September nonfarm payrolls came below expectations (we will elaborate on this in the future), while the Chicago Fed’s national activity index, which measures the overall U.S. economic activity, dropped from 2.54 in July to 0.79 in August. It means that the economy is stagnating or slowing down rather than accelerating. Another important index is New York Recovery Index, which is the combination of five sub-indices that aim to measure the pace of the recovery of the New York. As the chart below points out, the index remains around 50, which means that the city is only halfway back to pre-pandemic levels.



The sad truth is that the American recovery pace depends significantly on further stimulus packages. For that reason, Fed officials call the Congress to make a deal on the next aid bill quickly. Without a doubt, there will be a big rebound in the third quarter, but the economy will likely still decline in the whole year. According to the Economist Intelligence Unit, this year, the US economy will drop 5.3 percent, probably not returning to the pre-pandemic level until 2020.

In other words, a V-shaped recovery will occur. But it will take place in China, not in the US. China’s COVID-19 suppression turned out to be draconian in the short-term, but really effective in the long-run, as it allowed consumers to revert to their pre-epidemic behavior.

In contrast, the US never had any serious strategy to combat the coronavirus. So, not surprisingly, the end of the pandemic is still far away in America. Recently, the number of new cases has been rising again, as the chart below shows. Even President Trump tested positive for the new virus (we will elaborate on this in the next edition of the Fundamental Gold Report). And let’s not forget that the fall has just begun – with winter still ahead of us!



And no, waiting for a vaccine is not a strategy. Even if the vaccine gets invented by the end of the year, the economy may not rebound quickly enough. You see, the vaccine must also be distributed and injected, which takes time. The authorities may try to speed up the whole process, but its rapid implementation may result in ineffectiveness or, even worse, in some serious side-effects. Besides, a big part of society may refuse to be vaccinated, given the high uncertainty related to the Covid-19 and the eventual vaccine against it.

Implications for Gold

What does it all mean for the gold market? Well, just as the second quarter was disastrous for the American economy, it was similarly excellent for the gold market. And just as the third quarter was better for the economy that partially rebounded, it was worse for the yellow metal, which retreated from above $2,000 to below $1,900, as the chart below indicates.



However, given that the pandemic is not yet over and that the road towards full recovery will be long and bumpy, with further stimulus packages on the way, it seems that the recent correction was just, well, a short-term correction in a long-term bull market rather than a major reversal.

Investors should not forget about the dovish change in the Fed’s monetary regime. Even though gold didn’t rise or decline, it does not matter in an immediate reaction to the Fed’s strategy shift. You see, contrary to the widespread practice of market analysts, strategic movements should not be judged based on the current response financial markets response. Strategic political decisions, such as the Fed’s significant change in its monetary framework, are slow to act and bear fruit only over time. Given that the discussed shift implies lower real interest rates for longer and stronger tolerance to higher inflation, gold should benefit from it in the longer run.

If you enjoyed the above analysis and would you like to know more about the gold ETFs and their impact on gold price, we invite you to read the April Market Overview report. If you're interested in the detailed price analysis and price projections with targets, we invite you to sign up for our Gold & Silver Trading Alerts . If you're not ready to subscribe at this time, we invite you to sign up for our gold newsletter and stay up-to-date with our latest free articles. It's free and you can unsubscribe anytime.

Arkadiusz Sieron

Sunshine Profits‘ Market Overview Editor

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Arkadiusz Sieron Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in