Virussecondcomingandsecondorderimpact

The US suffered its single biggest daily corona virus cases on record. As more than 45000 new cases were confirmed on Wednesday, the number surpassed the April 26 peak by over 9000 cases. Apart from the rise in the number of cases, the jobless claims number was also larger than market expectations with 1.48 million people filing for unemployment benefits against the forecast of 1.3 million for the week ending June 20. Both news items make a dent in the quick recovery hypothesis and increase the possibility of a second wave and suggest the second order impact of the second wave.

The US stock markets, though, strangely shrugged off the bad news and closed a percent higher. Asian stocks are also in green taking their cue from the US markets. The US dollar index was trading strong at 97.40 against the below 97 levels seen earlier in the week. Oil prices rose marginally as news about the export cut by Russia and some flare up near Tehran reached the markets. Brent Crude is trading around 41.5 $/bbl levels. Chinese markets are closed today on account of dragon boat holiday.

The Indian rupee has opened stronger trading currently at 75.53. The 10 year benchmark bond trades at 5.90. There is a 30000 Cr INR bond auction scheduled for today and markets will likely see where the cut offs are and whether the government will go for the greenshoe option again or not. The Indian stock markets have also opened half a percent higher.

Now coming back to yesterday’s discussion around gold. We saw how in 1971 US president Nixon decided to unhinge the world of finance and currencies from gold and ushered the free float regime. This ensured that the gold prices, which were fixed at highly unsustainable low levels, rose quickly to achieve a new equilibrium level. The other fact which worked in gold’s favour was the constrained production on account of limited new findings. Fast forward to the present day, one line of inquiry can be that with the unlimited increase in fiat money, another fundamental adjustment of gold prices is in the offing. In his book The Currency Wars, author James Rickards discusses in detail the “when” aspect of the above query, having been convinced about the “if” aspect already. He argues that the central banks of the world would do well to increase the proportion of gold in their reserves in terms of UST’s. Here the fact that the metal doesn’t provide any natural yield in return as compared to treasury bills would weigh on the mind of decision makers and present a counter argument. We would urge readers to think about the efficacy of this counter in case the current low interest regimes perpetuate for a long time. As of now the metal trades at 1670$/oz.