Growing Number Of People Buying Gold

Gold is trading near a seven-year high, supported by an increasing number of coronavirus cases worldwide that threaten to curtail global economic activity. Gold has been rallying not only due to the virus but also due to the overall global economic growth.

Coronavirus- gold has been rising amid continuing worries over the Wuhan coronavirus. The price of gold bounced back from the weekly low ($1625) as COVID-19 showed no signs of slowing down, and fears surrounding the coronavirus kept the precious metal afloat as the outbreak dampened the outlook for global growth.

Gold edged higher on February 26 after a sharp drop in the previous session, as investors sought safe haven assets following a warning from the United States over the potential domestic spread of the coronavirus.

Global economy- After surging 18% last year, gold has extended its rally in 2020, with prices hitting the highest since 2013. The haven has been favoured as the virus outbreak has spread beyond China, threatening a pandemic and slower growth.

Perhaps, the worst case scenario to the global economy could start to materialize and that is keeping gold prices bid because everyone is concerned that the virus is leading to low yields.

The weakening outlook for global growth is likely to put pressure on major central banks to provide monetary support, and the low interest rate environment may heighten the appeal of gold as authorities like the European Central Bank (ECB) rely on non-standard measures to support Euro area.

It remains to be seen if the ECB will venture into uncharted territory as the Governing Council remains reluctant to push the main refinance rate, the benchmark for borrowing costs, into negative territory.

Federal Reserve- the Federal Reserve is expected to enact more “insurance” rate cuts as it looks like the U.S. economy has been impacted by the coronavirus. The virus could have a more significant impact than the trade issues had on the economy last year.

Friday preliminary PMI data showed that sentiment in the U.S. service sector contracted for the first time in more than six years.

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. Lower interest rates reduce the opportunity cost of holding non-yielding bullion resulting in a push in gold prices.

Gold has marked the longest winning streak since June, with the price for bullion trading at its highest level since 2013, and the precious metal may continue to exhibit a bullish behaviour as market participants look for an alternative to fiat currencies.

Besides the safe-haven demand, a growing number of people are buying gold in anticipation of weaker growth from the spread of coronavirus and action from the Fed.

So far, economists have only snipped their expectations for the economic impact on the United States and the profits of American companies. But the sharp tumble in stocks — and more importantly bond yields — on Monday suggests investors are quickly moving beyond those relatively rosy views.

Prithviraj Kothari is the author of this article. Find more information about Prithviraj Kothari.

Coronavirus Fears Continue To Impact Gold Prices

Gold prices have rallied about 7% year to date. Gold was seen trading near $1,670 an ounce, on Monday 24th February; its highest level since early 2013, boosted in part by a flight to safety stemming from the spreading coronavirus.

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 was up 1.9% at $1,674.40 per ounce during Monday’s trading session. The session high, $1,688.66, was its highest since January 2013.

The rise in gold was close to three times the gains in the S&P 500 before the selloff on Monday, Feb. 24 — while bond yields are at or near historic lows in the U.S. and in negative territory in many other developed economies.

Rising concerns and fears over the virus have spooked the markets. And the fear is not only over the rising medical emergency but also the result that it will have on various economies.

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. However, the rate of infection in China has eased.

The World Health Organization said it was worried about the growing number of cases without any clear link to China.

The missed work days in China may be equal to the entire U.S. work force taking a two-month unplanned break. The sheer size of this disruption is starting to be felt not only in China but also elsewhere, raising the risk of further short to medium-term pressure on growth-dependent commodities before demand eventually returns to boost prices.

There was a sharp rise in coronavirus cases reported in Italy, South Korea and Iran, with Afghanistan and Iraq reporting their first cases.

Investors view gold and other assets like government bonds and the U.S. dollar as safe havens during times of stress.

Investors’ fears over the virus outbreak triggered a wide sell-off in equity markets.  In Europe, markets had their biggest daily declines since mid-2016.

Concerns about the human and economic cost of the coronavirus continue to drive the need for strategic diversification and safe haven demand.

Gold is “a great hedge against market shocks and rising inflation” and is also a “great diversifier” in portfolios.

The yellow metal is a “great asset to add to more conservative portfolios and should ideally  take an equal but small pro-rata share from equity and bond allocations in those portfolios to end up with a 3% to 5% allocation to gold.

Gold is a “safe” investment with a “store of value” during tumultuous times like today, buffeted by geopolitical risks from Afghanistan, Iran, Iraq, Syria, North Korea and the U.K. (Brexit), uncertainty about the upcoming U.S. presidential election and, more recently, the spreading coronavirus.

At the same time gold is supported by strong demand for jewellery and central bank reserves, especially from emerging markets.

The news from Italy has taken coronavirus fears to the next worrying level of a global pandemic, potentially triggering significant stock market sell-offs, sending Gold above $1,800, and perhaps pushing the Federal Reserve to a rate cut in March.

We believe that the combination of additional rate cuts, increased stimulus, and negative US real yields – which reached a 7-year low at -0.15% - and increased worries about company earnings going forward, will continue to drive strategic diversification and safe haven demand.

Adding to this is the clear risk that the virus outbreak may have a longer and more profound impact.

Gold could be on the verge of a long-term super cycle if interest rates remain at historically low levels in the U.S. and around the world and the yellow metal breaks above the $1,888 high reached in 2011.

Prithviraj Kothari is the author of this article. Find more information about Prithviraj Kothari.