· Gold prices rose on Wednesday after a sharp drop in the previous session, as a U.S. warning of an inevitable pandemic prompted investors to seek refuge in safe-haven assets.
Spot gold rose 0.5% to $1,643.93 per ounce by 0627GMT, having slumped as much as 1.9% in the previous session. On Monday, prices touched their highest in more than seven years at $1,688.66.
U.S. gold futures eased 0.2% to $1,646.00.
· "People are worried that the virus is spreading across the globe and will become a pandemic," said IG Markets analyst Kyle Rodda.
"Perhaps, the worst case scenario for the global economy could start to materialise and that is keeping gold prices bid because everyone is concerned that the virus is leading to low yields."
The United States alerted Americans on Tuesday to begin preparing for the spread of coronavirus in the country as outbreaks in Iran, South Korea and Italy escalated.
· The effects of the outbreak are likely to reverberate beyond China as most major economies in the region are expected to either slow significantly, halt or shrink in the current quarter, Reuters polls found.
· "Investors are expected to continue to move into safe-haven assets as the impact on economic development in affected countries remains a subject of speculation," Phillip Futures analysts said in a note.
Asian shares fell as worries over the spread of the virus drove another Wall Street tumble and pushed yields on Treasuries to record lows.
· "The market is finding it difficult to look further into the medium term due to uncertainty regarding what the virus will do to the global growth. There are beliefs that central banks may cut rates sooner than later," IG Markets' Rodda added.
· The impact of the outbreak on global economic activities increased bets for monetary policy easing by central banks, with U.S. money market futures now fully pricing in a 0.25 percentage point cut by end-June.
Lower interest rates reduce the opportunity cost of holding non-yielding bullion.
· Reflecting appetite for gold, holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.7% to 940.09 tonnes on Tuesday.
· Gold Price Analysis: Trapped in a falling channel on 1H chart
Gold is flashing green in Asia, but the bias remains bearish with prices still trapped in a falling channel on the hourly chart.
At press time, the yellow metal is trading at $1,642 per Oz, representing 0.45% gains on the day.
While the recovery from the overnight low of $1,625 is encouraging, the metal is yet to challenge the falling channel resistance at $1,647. An hourly close above that level would imply an end of the pullback from recent highs near $1,690 and would shift risk in favor of a rise to $1,660 (a lower high on the hourly chart).
A breakout will likely remain elusive if prices find acceptance under the session low of $1,634. That would validate the bearish reversal pattern seen on the daily chart and could yield deeper declines toward $1,611 (Jan. 8 high).
· Among other precious metals, palladium gained 0.9% to $2,723.15 per ounce, while platinum rose 0.7% to $932.63, having touched its lowest in two months on Tuesday.
Silver was up 0.5% at $18.08 an ounce, having fallen as much as 4.1% in the previous session.
Reference: Reuters , FX Street
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