Why the ASX Is Tanking…and Gold Is Soaring — Gold is the Safe Haven

Yesterday we reported that the Reserve Bank of Australia’s (RBA) anticipated rate cut had been delivered.

The RBA cut the cash rate from an already historic low 0.75% to a new record low 0.50%.

Contrary to what most analysts were expecting, following the announcement the stock market sold off. The ASX 200 dropped from a gain of 1.8% at 2pm — previous to RBA Governor Philip Lowe’s decision — to close up only 0.7%.

Today stocks — with the notable exception of many gold stocks — sold off heavily. The ASX 200 down 1.7% in late afternoon trading.

It gets worse.

Yesterday (overnight our time) US Fed Chair Jerome Powell announced a surprise 0.50% rate cut, bringing the official US rate to 1.25%. And he did it before the FOMC meeting two weeks from now. That’s the first rate cut outside a scheduled meeting since October 2008.

Imagine Powell’s surprise when US markets all closed with heavy losses. The tech–focused NASDAQ led the way down, falling 2.99%.

For the first time, in a long time, investors aren’t buying into the ‘bad news is good news’ mantra.

This refrain has seen stocks mostly rise on the back of poor economic news or geopolitical tensions for more than a decade. That’s because investors have become accustomed to central bankers covering their backs.

Any significant pullback in share markets has quickly ushered in lower interest rates and QE. And markets have rallied back to ever higher-highs.

But not this time.

Clearly investors are spooked by the chasm of unknowns the coronavirus — and governments’ economically stifling efforts to contain it — present. Forward earnings estimates for most companies are becoming little more than wild, often hopeful guesses.

But as mentioned above, gold counts among the few winners today as investors seek out safe haven assets. Which in turn spells good news for Australia’s gold miners.

Of course not all gold miners will see their share prices go up along with the price of gold. It’s a notoriously risky sector.

With that in mind, The Rum Rebellion editor, Greg Canavan put together a free special report, ‘How to Pick Winning Gold Stocks’. You can download that, for free, by clicking here.

Bernd Struben is an Editor of The Rum Rebellion. In this capacity, he has access to one of the most intriguing and powerful networks of practical investment insight anywhere in the world.

Bernd has worked on four different continents, and has more than 20 years of professional finance, editorial, and management experience. He holds a degree in economics.

The Rum Rebellion