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Gold poised for a weekly gain amid virus

· Gold prices rose to the highest level in more than a week on Friday, on track for a weekly gain, as investors bet on the safe-haven metal to hedge against the economic impact of the coronavirus outbreak.

· Spot gold rose 0.5 per cent to $US1,583.18 per ounce after touching $US1,583.76, its highest price since February 3. For the week, bullion has so far gained about 0.8 per cent.

U.S. gold futures settled up 0.5 per cent at $US1,586.40.

· "The coronavirus scenario is still unclear and the on-off headlines on the situation are making the stock markets volatile, forcing investors to take refuge in safe-haven gold," said George Gero, managing director at RBC Wealth Management.

"Even with the virus gone, gold is expected to trade in the $US1,550-$US1,600 range as other uncertainties like lower interest rates across the major central banks, Middle East tensions and other political risks still exist."

· Chinese authorities on Thursday reported 121 new deaths and 5,000 new coronavirus cases in mainland China, and economists scaled back growth expectations for the world's second-largest economy as they assessed the impact of the outbreak.

· Global stock markets have had a volatile week as investors took and quit positions in riskier assets driven by the frequently changing headlines around China's coronavirus outbreak.

· Wall Street opened slightly higher, with gains kept in check by concerns about the economic hit from the outbreak. Further supporting gold's rise, US Treasury yields declined after soft retail sales data amid virus concerns.

· US consumer spending appears to have slowed further in January, which raises concerns about the economy's ability to continue expanding at a moderate pace.

· "We still target a decline in US Treasury yields, in addition to dollar weakness from a trade-weighted angle. We believe this gives gold a good risk-reward even if we see no further bouts in equity market uncertainty," UBS analysts said in a note.

· Among other precious metals, palladium fell 0.3 per cent to $US2,417.20 an ounce, but was on track to register its best week since the week ended Jan. 17, with a gain of more than 4 per cent.

· Silver rose 0.7 per cent to $US17.75 , while platinum fell 0.3 per cent to $US964.53

· Gold's $1,600 level to remain elusive, prices to test physical floor - Standard Chartered

“Gold’s price floor is yet to be tested and as coronavirus fears ease, physical market demand will be key, which has been reported to be weak in both India and China,” Standard Chartered precious metals analyst Suki Cooper wrote on Thursday. “If the virus is brought under control, gold prices are likely to test the physical floor.”

The physical demand is looking quite weak this year, especially when it comes to retail demand in India and China.

In China, coronavirus is partly to blame as “several retail stores … have noted likely downgrades to their sales due to store closures across China as well as travel restrictions,” Cooper wrote.

“Some estimates suggest sales could fall as much as 70% y/y in Q1-2020. Volume traded on the Shanghai Gold Exchange (SGE) is notably lower m/m, despite being compared to a month with an exchange holiday; SGE premia have slowly edged lower,” she added.

In India, demand could fall 20%-25% in February as consumers remain cautious amid high local prices, said Cooper, citing the India Bullion & Jewellers Association.

Central banks are still buying gold, but the level of purchases will likely be lower than in 2019, Cooper said. “Turkey added 46 tonnes in January, a strong start to the year. However, in January, China’s gold reserves remained unchanged at 1,948.3t for the fourth straight month.”

Despite Thursday’s gains, it is unlikely that investors will see a move above $1,600 an ounce on a sustained basis this month, according to Standard Chartered’s projections. The bank estimates for gold to average $1,540 in Q1 and $1,580 in Q2.

Gold prices managed to stabilize at higher levels without testing their floor, but as coronavirus fears ease, there is a chance for gold to head lower, Cooper noted.

Reference: Business News, Kitco