Increasing Volatility is Good News for Many Assets!

The volatility in the capital markets have been subdued, but the outbreak of the coronavirus might be the impetus that drives uncertainty. The SARS virus that struck China in 2003, initially put downward pressure on riskier assets, but within a year, the global recession ended with a rally that began in the United States.

The outbreak of the coronavirus might have more of an effect on stock prices, as China will be in no position to begin to negotiate a phase-two of the US-China trade deal.

How Will the Virus Effect the US-China Trade Deal?

The phase one portfolio of the trade deal between the US and China was a trade-truce and was an agreement to move forward with additional issues that both countries would like to address. China agreed to purchase a significant volume of grains from the United States. They also agreed to purchase a significant amount of other US products. With a coronavirus at China’s doorstep, it will be interesting to see if they are able to make good on their promise.

China appears to be acting in a methodic fashion to contain the virus. They did not act this quickly in 2003 when the SARS virus broke out. During that period, he virus spread throughout China and through the rest of Asia rapidly. With China cutting off the movement into an out of the Wuhan area, they are likely to contain the virus sooner rather than later.

The spread of the virus has been rapid. There are nearly 3,000 cases in China, and the death toll continues to rise. The lack of movement from city to city around China will create bottlenecks in the supply chain and eventually lead to a decline in imports.

When riskier assets in the capital markets begin to decline, the increase in volatility provides opportunities to actively trade across many assets. Higher levels of volatility enhance the demand for volatility ETFs as well as haven assets such as gold and silver. Bond prices will tend to rise as stock prices come under pressure. A contagion like a coronavirus could drive uncertainty which could spread across the capital markets spectrum. You can read the gold archives to learn more about the subject matter, which provides a wealth of information on the various topics covered. By exploring these resources, you can deepen your understanding and gain valuable insights that may enhance your knowledge further.

During the SARS virus, gold prices benefited from the uncertainty rising nearly 28% from March 2003 to March 2004. Gold returns provided the movements and liquidity in the precious metals space which was needed to drive the industry. Higher gold prices during the 2003 and 2004 period lifted the share price of gold miner stocks. The same appears to be happening today to gold price Brisbane.

Higher volatility withing the capital markets can be a good thing. Generally, robust capital flows occur when investors are adding capital to riskier assets. But with the major US stock indices at all-time highs, and a coronavirus scare, precious metal assets, and volatility assets are likely to benefit. If you are an active investor, you can look for markets that are on the move and beginning to trend higher