ASX gold, New Zealand-headquartered small caps take a hit; investors told not to panic

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The sudden drop in spot gold prices and reintroduction of COVID-19 restrictions in New Zealand have hit the relevant ASX small caps this morning.

After 100 days of being virus-free, four COVID-19 cases were detected in the country. New Zealand authorities are yet to determine the source of infection as the victims have no recent history of overseas travel.

Stage three restrictions have been reimposed in Auckland for the rest of the week as a precautionary measure, while the rest of the country is subject to stage two restrictions.

NZ-based stocks tumble

As at 1.30pm AEST only three ASX stocks domiciled in New Zealand were up while 37 were down and the remaining 15 were unchanged.

A number of companies have clarified what it means for them and not all are affected.

Biotech Aroa Biosurgery (ASX:ARX) said today it didn’t expect any disruption to its operations because it falls into the essential business category.

The company reminded investors it continued under even more arduous stage four restrictions earlier this year and was not seeing supply chain disruption.

It was a similar story for both large and small cap food and dairy plays, such as New Zealand Coastal Seafoods (ASX:NZS) and Synlait Milk (ASX:SM1), last time around.

And there’s little reason to suggest things will be different this time, at least during stage three.

On the other hand Skycity (ASX:SKC) will have to close its Auckland casino and telco Spark (ASX:SPK) will have to close a handful of stores in Auckland.

Gold stocks also head south

It was a similar story among gold stocks this morning. After a long bull run for several months, the gold price had its worst day since June 2013 falling over 5 per cent.

Once again only three stocks gained while a significant number tumbled off the back of no news.

Stocks that had seen monumental success in recent months made up a significant proportion of the losers — two examples being Tesoro Resources (ASX:TSO) and Alkane Resources (ASX:ALK)

Panic buying sets in again

Undoubtadly both of these shifts were unexpected after months of stability. There was no end in sight to the gold run and New Zealand had just gone over 100 days without community transmission.

Overnight, images emerged out of New Zealand of panic buying occurring at supermarkets across the country.

Police are at New Lynn Countdown after people ripped the doors open when security tried to control the amount of people rushing in. That woman is saying she needs food for her kid. This ain’t it Auckland. pic.twitter.com/PDf1Oe26Mx

— Matt Manukia (@MattManukiaTVNZ) August 11, 2020

But experts have warned investors not to do likewise.

Joseph Capurso, head of international economics at the Commonwealth Bank of Australia, is optimistic about the situation. This is despite Auckland accounting for 33 per cent of New Zealand’s employment and around 38 per cent of GDP.

“If the lockdowns are removed after three days, the damage to New Zealand’s’ economy should be small,” he said in a client note this morning.

As for the apparent halt in the gold rally, industry analyst Gavin Wendt said the plunge overnight was not the beginning of the end and there was still upside left.

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