If stocks fared badly, bonds and gold would be worth more, the stock market rule said. But now everything seems to be going in the ram. So many debts have been made, people opt for a personal loan because everybody seems to need cash in this pandemic. Even companies and investors seem to halt the flow of money because cash is an utmost need during these trying times.
Is The Stock Market Going To Crash?
Gold used to be a safe haven. Virtual coins like bitcoin were called gold 2.0. And when people fled from stocks, they fled into bonds. Now everything seems to collapse at the same time. People sell shares, but they don’t put it elsewhere. It seems as if they put it en masse under the mattress or hide it in an old sock. Cash is king.
Nothing is less true. Investors and companies need cash to absorb the blows of the corona crisis. Now that entire parts of the economy have locked down, corporate earnings are falling, such as airline ticket revenues or hotel reservations. ‘Companies rely heavily on banks’ credit lines because they do have to pay salaries.
- Shares. Stock prices recovered slightly on Tuesday. No one knows whether this is a prelude to a real recovery or whether it is another silence before the storm. Stock prices are very sensitive to any new calamity rise.
- Bonds. Stock market doom and gloom normally lead to rose and moonshine on the bond market. But that is no longer necessarily the case in this crisis. It was to be expected that corporate bonds are performing badly. They have been massively placed by companies in the past ten years because it was cheaper to borrow yourself than to go to a bank. But now some of those companies could fall over. They are dumped en masse. However, government bonds also no longer become more expensive by definition.
- Real estate. Real estate suffers severely from the stock market crash. The retail market is now chillingly quiet, apart from the supermarkets. In addition, customers switch to online shopping even faster. If there is a recession, the retail property will fall in value even faster. This certainly also applies to office buildings and the housing market. There are large shortages there, especially in the Randstad. And the extremely low mortgage interest rate also lays a floor in the market. However, as in 2008, if the corona crisis leads to bankruptcies and rising unemployment, confidence may drop and house prices fall.
- Cryptocurrency. Declared a new safe harbor. Forget it. Companies that have invested half a billion in equipment and energy costs for mining bitcoins are in danger of getting into trouble and falling due to declining prices. The price of bitcoin is much more volatile than that of gold. There are no authorities that can intervene, moderate price fluctuations, or stop trading. Other virtual coins have also lost a lot of value in recent weeks.
- Commodities. An imminent recession is always bad for the raw materials market. It leads to less demand for coal, iron ore, copper, lithium, and especially oil and gas. In addition, the corona crisis coincided with a price war on the oil market between Russia and Saudi Arabia, which are trying to push American shale products out of the market.
- Precious metals. ‘Stock market bleeds, gold glows’ is an old stock market wisdom. For a long time, it was the ideal refuge in times of crisis – be it political or economic crises. Paper money could be printed, gold had to be mined and that is less likely. Last week, gold went through $ 1,700 per troy ounce (31.1 grams), on Monday the precious metal recorded $ 1,460 – down 14 percent. It is not the first time that this has happened in a so-called bear market. During the 2008 credit crisis, the gold price fell 30 percent from $ 1000 to $ 700, and during the dot-com crisis from a quarter from $ 315 to $ 255. Silver does even worse. The silver price has fallen by 36 percent since February 24.
Many investors have taken positions through leveraged products to make quick profits. The gold price is not determined by the supply and demand on the gold market itself, but by gold futures (gold forward contracts). Investors must close en masse positions in those markets to meet the margin requirements – the banks demand additional funding when prices fall. The whole market has changed. The ten-year search for yield has become a search for liquidity, ‘says Benink. And so all values sink far away.