COVID-19’s toll to rattle gold prices next week as US becomes new epicenter

COVID-19's toll to rattle gold prices next week as U.S. becomes new epicenter

A massive three-day bounce in stocks has proven to be only temporary as equities tumbled Friday, once again dragging gold down with it.

One of the biggest news to drive markets next week will be that the U.S. has become the new epicenter for the COVID-19 outbreak, surpassing China and Italy with the number of people infected.

The number of cases in the U.S. surged to more than 100,000, with at least 1,500 deaths. Worldwide there are now more than 590,000 cases and at least 26,900 deaths.

"The spread of the virus will continue to be very important, especially with the U.S. becoming the epicenter now," said TD Securities commodity strategist Ryan McKay.

The world will be watching Italy to see if there will be a flattening of the curve there, McKay told Kitco News Friday.

"If we start to see a solid trend of slowing growth there, it could be a good sign that social distancing measures do indeed work and would sort of give us the timeline as to what to expect over here in North America potentially," he noted.

What makes the news of the U.S. being the new COVID-19 epicenter worrying is the extent of how the rest of the global economy relies on the U.S. market and the U.S. consumer, said Gainesville Coins precious metals expert Everett Millman.

"The fact that the Fed has to use all of its ammunition sets the stage for everywhere else in the world that easy monetary policy and stimulus measures will be the norm for at least several weeks, possibly next several months," he said.

There is still a lot of hope around the $2 trillion stimulus package, which the House passed by voice vote on Friday afternoon.

Stimulus aside however, what concerns the markets is the enormity of the economic damage to the U.S. economy.

"While the stimulus measures being rolled out around the world can mitigate the initial negative fallout from the coronavirus outbreak and help support the eventual recovery, COVID-19's economic toll could be more severe," said FXTM market analyst Han Tan.

And no matter how massive the fiscal and monetary stimulus packages will be, they are all about damage control, not growth, noted ING's Chief International Economist James Knightley. "The U.S. can only grow once the economy re-opens," he said.

U.S. jobless weekly claims were just a sneak peek of the real "data horror show" that's about to be revealed via all the other U.S. macro datasets scheduled for release starting next week, said Nomura Global Markets Research.

Thursday's jobless claims number saw a spike of more than three million, with many people getting laid off amid widespread shutdowns across the U.S.

Jobless claims remain the critical number to pay attention to next week with Capital Economics projecting a climb to five million

"Given that the jump in claims to more than three million appeared to capture only a fraction of the claims reported by some states, particularly California, we are braced for a surge to nearer five million," said Capital Economics senior U.S. economist Michael Pearce.

Friday's nonfarm payrolls data will be slightly less significant because March's survey was conducted before all major layoffs hit the U.S. "The March payroll survey was conducted in the second week of this month and therefore came too early to capture the full hit to the labor market from the pandemic," Pearce noted