Gold benefits from jitters over virus
With action expected from central banks, bets for a rate cut by Fed are being increased
Bengaluru — Gold rose on Thursday as the rapid spread of the coronavirus outside China fuelled demand for safe-haven assets and triggered hopes of interest rate cuts by major global central banks.
Spot gold rose 0.5% to $1,648.14/oz, as of 0316 GMT. Prices jumped as much as 1% in the previous session. US gold futures were up 0.4% at $1,650.10.
“Safe-haven demand is strong at the moment on the global economic impact of the coronavirus. There are growing expectations that central banks will certainly need to take action if it continues to spread, particularly outside China,” ANZ analyst Daniel Hynes said.
The number of new coronavirus infections inside China — the source of the outbreak — was for the first time overtaken by fresh cases elsewhere on Wednesday, with Italy and Iran emerging as epicentres of the rapidly spreading illness.
US health authorities, managing 59 cases so far, warned of the potential for a pandemic, though President Donald Trump said the country was in “great shape” to handle a looming health crisis.
Oil and Asian share markets slipped on Thursday, as investors sought safety in gold and bonds. Benchmark US 10-year Treasury yields also held close to a record low touched in the previous session.
Investors, meanwhile, have increased bets for a rate cut by the US Federal Reserve to ease the effect on the economy, according to an analysis of Fed funds futures compiled by the CME Group.
Money markets have also priced in cuts by the European Central Bank and the Bank of England. “Markets are already pricing in some decent cuts to rates across the globe so that’s the clear driver of [gold] prices and demand,” ANZ’s Hynes said
Lower interest rates reduce the opportunity cost of holding non-yielding bullion. On the flip side, “expectations of weaker economic growth in large consumers India and China may result in weaker demand and act as a damper on prices, analysts at Phillip Futures said in a note.
The virus has already choked activity in the physical bullion market in top consumer China.
Among other precious metals, palladium was up 0.5% at$2,802.28/oz, while platinum rose 0.8% to $917.72, having touched its lowest level since December earlier in the session. Silver gained 0.7% to $18.01 an ounce, after having touched a one-week low in the previous session.