Gold Is On The Move

So far in 2020, the yellow metal has been the best market to trade. Buy the dip has been the best possible scenario. We still have that scenario playing out. Gold is on the move. Risk aversion is pushing up gold prices. Weekend news showed that (the corona virus) is still spreading in many countries across the globe and this could impact economic activity and market sentiment.

As concerns about the impact of corona virus mount, investors have boosted holdings in exchange-traded funds backed by gold to the highest since November, with the assets now less than 25 tons shy of a record. Adding to the momentum, the Federal Reserve is gearing up for its first rate-setting meeting this year, where it’s expected to maintain easy monetary policy, and the World Gold Council will offer its assessment of global demand trends.

Gold jumped 1% on Monday to a near three-week high as growing concerns that the corona virus outbreak could impact the global economy pushed investors to safe havens.

Spot gold was up 0.8% at $1,582.41 per ounce during Mondays trading hours; having earlier touched it’s highest since Jan. 8.

The widely spreading corona virus has prompted the Chinese authorities to introduce travel restrictions across 10 cities, affecting up to 40 million people according to some reports, in the middle of the country’s most important holiday season, the Lunar New Year. Even Shanghai's Disneyland, one of the country’s most popular tourist destinations, has been shut.

Fears of a global contagion from the corona virus has plummeted stock markets worldwide. There’s nothing like a global contagion to get gold buyers to pile back into the safe haven. The yellow metal hit two-week highs on Friday, creeping toward the $1,580-per-ounce level targeted by gold bugs on worldwide fears over the economic fallout to the China-originated corona virus.

The death toll from the corona virus outbreak has risen to 81 in China, with 2,744 confirmed cases, and the virus has spread to more than 10 countries, including the U.S. and France.

Despite the strength of the greenback, the bullion price is taking advantage of this uncertain situation.

Markets are focused on news around the deadly corona virus. There will clearly be a significant economic impact, centered in China. A key question is the time it will take for the virus to be contained and one can only speculate at this stage.

Investors will be watching the U.S. Federal Reserve’s first policy meeting of this year on Jan. 28-29, where it is widely expected to keep rates unchanged.

In recent years, high interest rates, risk aversion stemming from the downturn in global trade, and support from earnings repatriation have supported the US dollar.

But over the coming years, US growth and interest rates will be closer to those elsewhere in the world, and uncertainty ahead of the US election and the waning effect of tariffs suggest a weaker greenback is likely.

The Fed at its monetary policy meeting on Wednesday use the same kind of cautious language heard by the ECB and BOC, then that could be the rocket fuel gold needs to sustain gains above $1600 per oz.

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