Gold at a seven-year high and bond yields flirt with record lows as fear grips Wall Street

Fear has returned to Wall Street. The spread of coronavirus cases in Italy, Iran and South Korea is shaking investors out of their recent complacency.

Investors are nervous that the global economy will slow dramatically in the first quarter because of coronavirus. And they are piling into classic safe haven fear trades as a result and shunning anything that seems risky.

Stocks around the world are plunging. The Dow fell more than 1,000 points. Gold is at a seven-year high and miner Newmont (NEM) was the second-best performing stock in the S&P 500 Monday, gaining 3%.

Long-term bond rates are falling sharply as worries about a recession increase. The 30-year US Treasury yield is at an all-time low and the 10-year is not far from its 2016 record low of 1.32%. The price of US oil fell 5%. And the US dollar is near a 52-week high.

Verizon (VZ) and Merck (MRK), which both pay dividends that yield substantially more than Treasury bonds, were the only two Dow stocks trading higher Monday morning. Several high-yielding real estate investment trust and utilities were among the 30 S&P 500 stocks trading higher. So was wipe maker Clorox (CLX).

The VIX (VIX), a measure of market volatility that usually spikes when investors are scared, surged nearly 45% Monday and is nearing a 52-week high. And the CNN Business Fear & Greed Index, which measures the VIX (VIX) and six other gauges of investor sentiment, fell into Fear territory Friday for the first time since October. It edged closer to Extreme Fear Monday.

As a result of the market panic, experts are starting to wonder if the Federal Reserve and other central banks will soon be forced to cut interest rates even further.

“Investors are starting the week on the back foot and no one is ready to risk big. Traders are anxious about the global economic growth number for the first quarter,” said Naeem Aslam, chief market analyst with AvaTrade, in a report. “Central banks will be pushed in the corner due to the global economic meltdown caused by coronavirus and this mean more stimulus.”

Traders are now pricing in a nearly 25% chance of a quarter-point rate cut at the Fed’s next meeting in March, according to futures contracts tracked by the CME. That’s up from just 11% on Friday and less than 4% a month ago.

A man wearinig a respiratory mask and gloves is pictured on February 23, 2020 in Casalpusterlengo, south-west Milan, Italy.

Related article Global stocks hammered as coronavirus cases surge in South Korea and Italy

“The coronavirus represents the most uncertain macro risk markets have faced in years,” said Alec Young, managing director of global markets research with FTSE Russell, in a report Monday. “As the virus spreads to Europe, the threat to global growth moves beyond China and the global supply chain and now directly threatens the heart of European manufacturing.”

Young added that “investors are also acutely aware that many misjudged the economic severity of the virus early on, making them more open to entertaining worst-case scenarios now.”

The stock market sell-off and rush into safer assets may be just beginning, especially if the Fed and other central banks move to lower rates.

“The coronavirus is going to be a headwind to global growth. The remedy may be that central banks have to step in with more stimulus,” said Everett Millman, a precious metals specialist at Gainesville Coins, in an interview with CNN Business.

Millman added that gold prices, now trading around $1,675 an ounce, could easily top $1,800 later this year and approach 2011’s all-time high of more than $1,900. He added that bitcoin, which has been soaring this year, could rally further as well, since “borderless money” will have more appeal if the outbreak intensifies.