Gold Price Advances Higher On Coronavirus Fears

Gold Price Advances Higher On Coronavirus Fears
  • Coronavirus death toll has risen to 132
  • Investors have been shifting funds to less risky assets
  • New multi-year high for Gold may be a question of when, not if

China’s coronavirus has continued to spread around Asia and the Middle East as the global economy starts to suffer as well. As a result, investors are pulling out from the high-yielding assets and transferring funds to safe-haven assets, such as gold. 

Fundamental analysis: Coronavirus rings alarm bells

Gold spot price is currently trading unchanged on the week after the asset gained nearly 1% more in value last week. The spreading of coronavirus and the increased demand for safe-haven assets may accelerate the move higher. 

“Safe-haven buying has been triggered by this virus in China and we’re seeing a big sell-off in equity markets… It’s mostly panic, the markets are looking at the prospect of the Chinese economy slowing down. We could hit the recent highs above $1,600s if this thing deteriorates,” said Edward Meir, analyst at ED&F Man Capital Markets.

The Gold spot prices trade at $1570 currently. 

Media outlets have reported that the coronavirus caused the death toll in China to rise to 132, while the number of infected people is higher than 5,000. Germany, the United States, and France all have registered coronavirus cases so far. 

Moreover, the Federal Reserves are meeting today in another event that may impact Gold prices. The coronavirus is also on Fed’s agenda while investors will be reading the meeting minutes closely, as well as listening to Chairman Powell’s comments, for any clues on potential changes in the monetary policy outlook. 

“The virus is the wild card for the Fed. But, don’t expect any changes at this meeting. The basic case is that they are neutral on rates and don’t do anything,” said Gainesville Coins precious metals expert Everett Millman.

It is widely expected that the Fed keeps rates unchanged.

Technical analysis: Move above $1,610 possible

Gold spot prices hit a 3-week low two days ago on fears of the coronavirus outbreak. The price is now approaching the January 06 high, which is also the 7-year high for the precious metal, and the next target for the bulls. 

“The main trend (in gold) remains bullish, with the short-term correction seen in the last few weeks seemingly over, increasing the chance of the price achieving a new 7-year-high in the next few weeks,” ActivTrades Chief analyst Carlo Alberto De Casa said in a note.

Gold (XAU/USD) weekly chart (TradingView)

If investors continue to buy Gold, watch out for $1,626 as the next target for the bulls. The mid-term target is $1,740, which would translate into the highest levels since 2012. 

On the downside, the intra-day support is $1,557, while $1,535 is expected to provide a more robust support to the bulls. 

Summary 

The spread of China’s coronavirus has caused precious metals, including Gold, to move slightly higher. This move can be accelerated if the number of deaths and infected persons continues to rise. In this case, the fresh multi-year high for Gold spot prices is a question of when, not if.

By Michael Harris
Specialising in economics by academia, with a passion for financial trading, Michael Harris has been a regular contributor to Invezz. His passion has given him first hand experience of trading, while his writing means he understands the market forces and wider regulation.
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