Coronavirus concern was the dominant driver across global markets in February and the gold market was no exception. Gold fell to its monthly low on 5 February as the S&P 500® trended to new all-time highs on the belief that the impact from coronavirus could be contained. As more infections were reported from South Korea, the outlook became clouded and gold had a strong advance to a seven-year high of $1,689 per ounce on 24 February. Gold bullion exchange traded funds saw an unprecedented 25 consecutive days of inflows. However, during the last week of the month, markets came unglued as it became clear that the virus was spreading globally with infections in Italy, Iran and the U.S. The stock market crashed, creating a flight to cash, margin calls, and unusual derivatives trading. Safe haven assets such as gold, gold stocks and the U.S. dollar fell in the chaos. For the month, gold declined $3.47 per ounce (0.2%). The NYSE Arca Gold Miners Index (GDMNTR) dropped 8.13% and the MVIS Global Junior Gold Miners Index (MVGDXJTR) declined 10.41%.
While the sell-off in gold stocks was painful, it is not unusual in the midst of a stock market panic. The last such example was the 2008 financial crisis crash. Following the 15 September 2008 Lehman bankruptcy, gold declined just 10% before trending higher on 27 October. Over the same period in 2008 the GDMNTR fell 48%, but by 16 December it had recovered to its pre-Lehman level in a classic V-shaped recovery. Contrast this with the S&P 500 that didn’t reach a bottom until 6 March 2009 after falling 46%. The S&P didn’t recover its post Lehman losses until January 2011. So, while the general stock market was struggling to recover for over two years, the gold stock market quickly rebounded and went on to bull market gains. We believe the markets will look back on the coronavirus “black swan” as a buying opportunity for gold shares, however, whether the worst is yet behind us is anyone’s guess.