Gold surges to 7-year top as pandemic fears spark safe-haven rush
· Gold soared as much as 2.8% on Monday to its highest level in seven years, as investors worried about global economic growth in the face of sharply rising coronavirus cases outside China.
· Spot gold climbed 1.7% at $1,671.24 per ounce. The session high, $1,688.66, was its highest since January 2013. U.S. gold futures settled up 1.7% to $1,676.6.
· Gold prices consolidate gains to sub-$1,650 area amid risk reset
Gold prices decline to $1,649.50, down 0.62%, amid the initial hours of the Asian session on Tuesday. While the risk of spreading coronavirus outside China propelled the bullion to a fresh seven-year high on Monday, the recently mixed headlines seem to trigger the pullback amid risk reset.
Among the key catalysts, China’s lowering of emergency alerts in various provinces and the recent recovery in coronavirus (COVID-19) numbers played the key role. Also challenging the risk-on was the World Health Organization’s (WHO) tweet mentioning the epidemic to have peaked between late-January and early-February. Further to support the sellers were the US President Donald Trump and the Federal Reserve Cleveland President Loretta Mester who downsized the risks emanating from the Chinese virus.
Unless rising back beyond $1690, gold prices are expected to test the resistance-turned-support line stretched from September 2019, at $1,633 now.
· Gold bugs appear relentless in their pursuit of $1,700, setting another seven-high for the yellow metal on Monday from fears over the coronavirus and potential rate cuts, even as analysts warned of a possible sharp reversal in the market.
“The structural bid in gold should keep investment capital flowing towards the yellow metal, driven by real rate suppression from global central banks who remain willing to let inflation overshoot for some time,” TD Securities said in a note. “That being said, the risk of a near-term pullback is as high as it's ever been.”
· “The markets are spooked right now,” said Bob Haberkorn, senior market strategist at RJO Futures, citing coronavirus fears.
“The concern is not about the virus precisely, it is from the economic standpoint. The Dow Jones is down about 1,000 points, the bond yields are also lower.”
· There was a sharp rise in coronavirus cases reported in Italy, South Korea and Iran, with Afghanistan and Iraq reporting their first cases. However, the rate of infection in China has eased.
· Outside mainland China, the outbreak has spread to about 29 countries and territories, with a death toll of about two dozen, according to a Reuters tally.
· The World Health Organization said it was worried about the growing number of cases without any clear link to China.
· Investors view gold and other assets like government bonds and the U.S. dollar as safe havens during times of stress.
· The curve inversion between the 3-month and 10-year U.S. Treasury bond yields deepened, in what economists view as a recession signal. The benchmark 10-year Treasury yield fell to its lowest since July 2016.
· Investors’ fears over the virus outbreak triggered a wide sell-off in equity markets. The Dow Jones industrials slid more than 800 points, below its 100-day moving average for the first time since October.
· In Europe, markets had their biggest daily declines since mid-2016.
· “The upswing in the gold price is being accompanied by further ETF inflows. Speculative financial investors have also increased their bets on rising gold prices significantly,” Commerzbank analysts said in a note.
“However, this also means that the gold price upsurge is on shaky ground, so falls can be expected in the event of profit-taking.”
· Reflecting increased investor interest in bullion, speculators raised their bullish positions on COMEX gold and silver contracts in the week to Feb. 18, data showed on Friday.
· Mirroring gold’s gains, silver rose 1.6% to $18.75 an ounce, having hit its highest since September at $18.90.
· Palladium eased 3.3% to $2,613.59 per ounce, while platinum shed 1.1% to $962.72.
Reference: CNBC, Investing, FXStreet
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