The World Gold Council says a quick resolution to the COVID-19 emergency won't have much impact, but wider lingering economic effects could raise the gold price sharply

The World Gold Council says a quick resolution to the COVID-19 emergency won't have much impact, but wider lingering economic effects could raise the gold price sharply

By Juan Carlos Artigas. Content sourced from the World Gold Council

It’s been less than two months since the 2019 novel coronavirus (COVID19) was first reported in China, and a recurring question we hear from investors is: ‘How might gold react to an epidemic like this?’

What we know from SARS

The 2003 SARS epidemic started in late 2002 in southern China but developed primarily between late March and early July 2003.1 While COVID19 is already evolving differently from the SARS epidemic, it provides the most applicable – even if imperfect – comparison available to understand how COVID19 may affect the gold market. With the qualification, of course, that both the Chinese economy and the gold market were much smaller and looked very different in 2003 than they do today, as we discuss below.

Chinese jewellery demand

Chinese jewellery demand is quite seasonal (Chart 1): the first and fourth quarters are traditionally strong while the second quarter is generally weak.2 However, even after adjusting for this seasonal pattern, Chinese jewellery consumption contracted more than expected during the 2003 epidemic – roughly by an additional 10% to 15%.3 In the main, this effect was transient as gold demand rebounded fairly quickly and, by the second half of the year, was back in line with seasonal averages.

Gold price performance

Our analysis shows that the impact on Chinese demand during SARS was fairly evident. However, its impact on price was not. The gold price increased by approximately 3% during Q2 2003 with an intra-quarter maximum of 16% (Chart 2). But it’s not easy to assess the contribution of SARS, if any, to gold’s performance, as the 2003 epidemic coincided with the start of the US invasion of Iraq and a period during which the US dollar generally weakened.

The evolution of China since SARS

While the comparison to SARS may provide some guidance, important changes have been experienced in China and the Chinese gold market since the 2003 outbreak.

The Chinese economy in 2003 represented US$1.7trn compared to an estimated US$14.3trn in 2019.4 On a relative basis, China has become a more important component of the global economy, contributing close to 15% of world GDP today, relative to 3% back in 2003. In addition, the structure of Chinese GDP has markedly changed from being mostly investment driven to mostly consumption led (Chart 3).

The Chinese gold market has also changed a lot. Chinese consumer demand accounted for 8% of the world’s total in 2003. Today, China is the largest gold market, contributing 30% of consumer demand in 2019. The sources of demand have also changed: investment was virtually nonexistent before the establishment of the Shanghai Gold Exchange (SGE) in 2002 and the legalisation of private gold investment in 2004 (Chart 4).

These changes to the size and makeup of the Chinese economy and the gold market have relevant implications on the likely effect of COVID19.

For example, the fact that Chinese GDP includes a higher contribution from consumption means that GDP may suffer more than it did in 2003 given the reduced economic activity it has already experienced so far this year. At the same time, the impact of softer Chinese growth will affect the global economy and increase investor uncertainty, which may support flight-to-quality flows into gold – in China and abroad. Some of this effect is already visible by the increase in trading volumes at the Shanghai Gold Exchange following the Chinese New Year, as well as by continued inflows into gold-backed ETF over the same period. On the other hand, however, the drag from a potential deceleration of Chinese gold consumer demand may have a more noticeable effect on price than it did in 2003.


The coronavirus outbreak in China is evolving rapidly. While expanded diagnostics have increased the number of reported cases, there are indications that the spread of disease is starting to decelerate, especially outside of Hubei Province, where the virus first struck. How it plays out is yet to be determined but, in our view, it is all but certain that China’s consumer demand will ease. Q1 demand may contract by at least 10-15% if history serves as a guide. Whether demand rebounds or continues to soften will depend on the duration of the epidemic and its impact on economic growth.

The impact on gold’s price performance is less clear:

  • If the situation is resolved relatively quickly and the global impact is contained, the outcome may be limited to softer Chinese gold demand and a transient impact on price
  • If the epidemic spreads further and continues to affect investor sentiment, global flight-to-quality flows, amidst concerns of a global deceleration, may have a more sustained (positive) impact on the gold price.


1 Center for Disease Control:

2 All outliers – marked with asterisks (“*”) – on Chart 1 correspond to 2013 demand when the gold price dropped substantially and demand did not follow historical seasonal patterns.

3 While we are not including bar and coin demand in the analysis below because the market was too small at the time, the limited data available still suggests a similar behaviour.

4 National Bureau of Statistics of China.

This article is a re-post from here.

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Safe to say that China is under reporting. Japan infection stats starting to get highish and containment looking more likely by the day.
Reports that some US States not reporting infection numbers due to 'national security'.
Bubbles and debt abound.
One month since it was first reported to the world Jan 20th last Thursday. The world is a very different place now and not likely to come back to normal for a year or so if it is quashed now.
Good articial but still on the light side of the fall out of where this is logically heading in my view.
40 days ago we were looking at several situations and bubbles wandering which one was the trigger to collapse it all, now the narative seams to be it won't be that bad, when this is by far worse than before plus the issues that still remain.

Zerohedge is doing a great job of aggregating reports from around the world.

Time to think about immune system boosters and flu prevention measures;

Typical viruses live 2-8 hours on hard surfaces - this one is thought to last up to 28 hours. The more one reads about the 'novel' aspects of COVID-19, the more I suspect it originates from human engineering at that infectious disease lab in Wuhan.

Kiwi muppet media isn't reporting that stuff.
Getting worse really fast.

If there is any truth to the theory it's been manufactured by the lab then a vaccine is probably already in the works. No point developing a bio weapon without something to protect the home team. If so watch for the amazing Chinese scientists to announce a "breakthrough" vaccine which has probably been tested on Uyghurs.

Zero Hedge has been covering the coronavirus outbreak very well.

I do enjoy reading it but I always take everything there with a grain of salt. Top quality spruiking for the purchase of gold, silver and ammunition though.

The comment sections are truly a spectacle.

The Party wants to resume BAU asap, as the pressure is mounting. Spoke to my family living in the south part of China this morning, the price of grocery has gone up a lot. Tho it's not up to the Party this time, the condition is simply not ready regardless how they cook the book. I have read news reporting the entire office got quarantined after going back to work. I have also read news saying cured patients relapsed again after getting discharged. Being an optimist, I think China will be offline for another 3 months at least. Also the outbreak hits Korea and Japan now, three major economy engines could be going offline together...

Cheers NZC it's good to hear what is going on from what you hear from people you are there.
If China can't keep this from blowing up with all their measures, the rest of the world hasn't got a chance.

When the coronavirus causes a breakout of inflation here what's the bet that Adrian Orr looks the other way while savers are eviscerated.

What's the alternative, raise interest rates and watch their pet housing ponzi implode?

You can argue that the the drivers of the gold price are already too well established anyway for Coronavirus to have much meaningful impact (IMO, it just seems to have exacerbated and set the scene for more money prining). Therefore, the emergence of the virus has just amped things up that much more. Both Chinese and Russian govt puchases of gold have been pushing the price higher for some time.

They weren't buying it to play Tidly Winks and I'm thinking that plan would have been pushed forward with the current situation.

News of Italy banning public gatherings and school closeing.
3 US States are ready, big back log of testing to be done. Nobtesting on Hawai despite an infected person visting there.
Lots of bad news coming in at the moment and getting worse.
Gold to $1700 next week at least and then trucking on higher and faster from there. Its only a matter of time till the masses catch on they are being told a load of porkies.

So in summary the price of gold might go up, or it might go down. Brilliant, guy is a genius. If he can make money writing this stuff I am in the wrong game.

Any gold buyer who expects the price to only go up probably shouldn't be buying it. Until quite recently, the gold price went nowhere for 6 years scraping along while everything else went mental. The relatively small proportion of people who buy gold have been resilient if they're long-term holders and don't believe the hype seen with other mainstream asset classes.

I see gold doing well in inflation and badly in deflation, just an observation, I think deflationary forces are gathering.
Gold is good at preserving spending power if currency is being destroyed by inflation yet ,for years we had high inflation but poor returns on gold as everyone prefered the high deposit rates.
In deflation your money should be buying more, whether that will happen or not is the big question. The problem today is speculation and financial instruments of mass destruction distort all around us.

Not sure I agree about gold underperforming in a deflationary environment. If you look at the price of gold relative to JPY over the past 20 years, it has been one of the best places to store wealth or value.

Also the only other time in history of deflation it slightly increased in value but great apreachated in buying power (world depression). 5000 years of history speaks for itself.
Plus what else is there??? Bitcoin looked good but down again..

Logic and history show that if thdre is stress in the system something else will proform.
I don't see anything else other than PM's.

Channeling my inner Audaxes:

Gold isn’t an inflation hedge. It is both a signal of, as well as protection against, Economists/central bankers who are particularly prone to making huge errors and the great costs associated with the instability that always comes with them. Link

There's some plots of gold both doing poorly and well vs inflation in the article as well as his justification. Snider also refers to gold as the "collateral of last resort" or my interpretation its a hedge against currency or US treasuries not regular inflation. Not sure if i completely agree but its a convincing argument.

What else is there, is how I see it.

That's what he means by "last resort". If you look back at the trends it does have a habit of loosing its value all of sudden after the risk is gone. I guess this could be better collateral becoming available again. Which is not a good sign for my long term inattentiveness when it comes to investing.

While a UST will rise in value during a liquidity event partly or even mostly because of its status in repo, the opposite happens in the gold market. Though gold is a collateral of last resort, too, it isn’t as flexible and so it gets dumped whenever deployed that way.
It gained a lot after Lehman because, well, fear. And then it promptly collapsed again when the repo market totally seized up in early and middle October once collateral became the most valuable commodity on the planet. LINK

And with cash rates so low your not missing out on much holding gold.

Hopefully only there for the good times.

"Gold Is Money, Everything Else Is Credit" JP Morgan.

Great article. Also.... bitcoin (aka digital gold). Its return this year speaks for itself.

Up and down at present and untried over time.

Looks to me like it takes a hit when ever confidence in the stock market is lost. The opposite to what happens to real gold.

btc is NOT digital gold. It is digital nothing, zilch, zero. It is a bit of software, and not even very good.
Fools gold perhaps, but comparisons with gold is juts marketing by the pump and dump brigade.

The SARS crisis of 2002 and H1N1 swine flu crisis of 2009 are not good comparisons because they both happened points in time when the stock market was significantly undervalued. SARS came after the dot com bust, and H1N1 came after the GFC. We're currently in the "everything bubble" with a decade of unprecedented gains in stocks realestate alonng with unprecedented increases in central bank and government debt.
One more point regarding gold - I've heard rumors that the repo crisis of last year was caused by banks losing faith in HSBC, who themselves lost billions of dollars. Not sure if that's true but it's worth noting that HSBC is the custodian of the gold ETF called GLD. Looking forward HSBC's balance sheet is likely to be severely impaired by the wave of Asian corporate defaults that are coming due to the coronavirus.

What could possibly go wrong?

Thankfully we have such a strong Gov't that we have full faith in... we're screwed!

Your point about HSBC being the custodian of the SPDR Gold ETF is correct and a potential cause for concern. The Perth Mint warrants are far more secure and can be exchanged for physical. PMGOLD is guaranteed by the Western Australia government, not the federal govt.

Yes the Perth mint seems quite innovative. I know they've created the PMGT (perth mint gold token) a cryptocurrency which where 1PMGT = 1 Ounce GoldPass certificate = 1 ounce of gold. It's tradable on a blockchain, 100% redeemable for gold, zero transaction fees, zero storage fees, and as you say completely backed by the Western Australian government. If you're not interested in the cryptocurrency then you can just use the GoldPass certificates which are electronically tradable on the phone app. cool stuff.

Yes. I've owned GLD since 2005 but wanting to shift out, partly because of the association with HSBC. I also own PMGOLD and also blockchain literate and need to explore PMGT.

I see China has flip-flopped about the source of the virus ............... says it was "introduced" into China .

Its okay China ................ just blame Donald .

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