Gold, coronavirus, and the high cost of face masks in northern Italy

The price of gold is spiking – as it always does in a global panic. But this bull market predates the coronavirus epidemic, says Dominic Frisby, and will continue beyond it.

Face masks are selling at a premium in Venice
(Image credit: AFP via Getty Images)

Gold spiked to $1,690 an ounce on Monday amidst the coronavirus panic. Seven-year highs. It quickly gave back some $65 of that move, retreating to $1,625 the following day before closing around the $1,650 mark.

But 2020 has nonetheless been a great year for gold so far. It began with gold some $125 lower at $1,520, and it has been climbing ever since. Can it last?

Gold’s behaviour during panics is predictable. But how long will this panic last?

Trading gold in times of panic is near impossible, unless you have some kind of advanced knowledge of the panic that enables you to predict what’s going to happen next and what the market reaction will be – that, or some superb tool to read sentiment. The time to buy gold is not when the world is rushing to it; if anything, that’s the time to sell gold. The time to buy gold is when nobody cares and the market is quiet. Such times are all too common, as any gold owner knows.

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It’s fairly easy to predict how gold behaves during panics. What is not easy to predict is how far the panic will spread. Gold will spike in the early stages – we have seen that twice already. The more the panic spreads, the more gold will spike. And yet as soon as the panic begins to subside, gold will quickly give back all the gains that it made – and sometimes more.

When’s this coronavirus going to get under control? That’s what every market trader is trying to ascertain and nobody knows. I must confess to having been far too complacent about it. I think much of the rest of the market was too. That’s why with the latest evolution we’ve seen in the past week, so many have been caught wrong-footed.

The big difference between coronavirus and the Sars outbreak of 2003, it seems to me, was that news of the coronavirus broke far earlier in its evolution. So the attitude of “oh, it’s another Sars, it will pass” – right though it may well eventually prove to be – was the wrong one. The markets only got to hear about Sars later on. The outbreak began around 27 November, 2002, but it didn’t make the news until February 2003 – more than two months later, when an American businessman traveling from China, Johnny Chen, was taken ill on a flight to Singapore.

That same period of ignorance is less possible in today’s connected world of smartphones, cameras, social media and fast internet. It means the world can track the evolution of the virus and react accordingly.

Coronavirus began in December and the markets were already panicking by early January. Sars itself was a coronavirus. The initial consensus that today’s coronavirus is more contagious but less fatal than Sars is probably correct. But the contagiousness means it is spreading further and quicker. This only adds to the panic.

A view from the coronavirus outbreak in northern Italy

I have just come back from northern Italy – from the Veneto – and I was there as things escalated. So I had one of those unusual perspectives where I can see things on the ground and I can see how the news is reporting it all.

I arrived at Venice’s Marco Polo airport on Sunday morning and I knew something was up because medical officers were checking people for fever as they entered the terminal building – just before passport control. (I would have thought it was more advisable to test people before they entered the terminal building, where the crowds are thinner and the air is less recycled.)

Once past the test, however, life seemed fairly normal – and why wouldn’t it? What else are people supposed to do? On the other hand, I was being bombarded by text messages from my mother, who is in California, and no doubt following American news, telling me to get on the next plane home.

I was in Padua for a couple of days and then stopped off in Venice on my way home. The only thing out of the ordinary was that some people were wearing masks. Really not that many though – one in 30 maybe?

We tried to get some masks, but every chemist in Padua and Venice seemed to have sold out. On the Tuesday, I eventually found one in Venice, but the vendor was an illegal street trader on the Rialto Bridge and just as I began to negotiate a price with him, some local authority moved him along because he didn’t have a permit. (He wanted €5 a mask and people were happy to pay the “panic premium”.)

On the way back I was surprised in Marco Polo airport to see so few people wearing masks. Just a few travellers; none of the staff. I don’t know if staff had been told not to wear them, or if the terminal had perhaps been sprayed or decontaminated somehow overnight, but no staff were wearing masks.

More surprising still was that there were no medical staff on the way out. I was flying back to London with British Airways and I would have thought there would be some checks to make sure infected people weren’t getting on the flight. At Gatwick there were no checks either. I’m sure there’s a reason for this – but it suggests that the authorities are either behind the curve, under-resourced or not yet as concerned as the news reporters.

For me, the most worrying aspect of the virus is its spread into the Middle East, where communication is not as quick as it is further west, where the authorities are more censorius and where resources to treat (and quarantine) the sick are more stretched. There it has far greater potential to spread and do damage than it does in Europe. Natural disasters almost always hurt poorer nations more than they do wealthy.

My view all along is that the reaction to coronavirus has been excessive and that markets will soon right themselves. But the fact is that it will be several weeks, if not months before things are brought under control (or perceived to have been brought under control) – and that means markets will be panicky and choppy. Volatility is inevitable.

Gold will be spiky – both up and down.

Gold’s bull market predates this panic – and it will continue beyond it

But the bottom line about gold is that it was already in a bull market long before the coronavirus. In late 2018, it was trading at below $1,200 an ounce. It has been working its way up ever since.

It has a bull market for a few months, then consolidates, then enjoys another leg up. These spikes into the high $1,600s are part of the latest leg up.

As coronavirus passes, it will give back some of the panic premium, just as the man selling masks will not be able to charge €5 on the Rialto Bridge. In fact, he will no doubt discover there is no market for his masks at all.

The panic will pass, gold will give back, but the longer-term bull market that gold is in will remain intact.

Daylight Robbery – How Tax Shaped The Past And Will Change The Future is available at Amazon and all good bookstores with the audiobook, read by Dominic, on Audible and elsewhere. If you want a signed copy, you can order one here.

Dominic Frisby

Dominic Frisby (“mercurially witty” – the Spectator) is as far as we know the world’s only financial writer and comedian. He is the author of the popular newsletter the Flying Frisby and is MoneyWeek’s main commentator on gold, commodities, currencies and cryptocurrencies. He has also taken several of his shows to the Edinburgh Festival Fringe.

His books are Daylight Robbery - How Tax Changed our Past and Will Shape our Future; Bitcoin: the Future of Money? and Life After the State - Why We Don't Need Government

Dominic was educated at St Paul's School, Manchester University and the Webber-Douglas Academy Of Dramatic Art. You can follow him on X @dominicfrisby