Gold Easing Off

Gold Easing Off

Gold easing off near two-week high as investors continued to gauge the potential impact of the coronavirus on both the global economy and Chinese gold demand, while the Chinese Central Bank steps in with a monetary policy intervention in an attempt to limit the economic impact from the virus outbreak.

The death and casualty toll from the coronavirus, designated COVID19, has climbed more quickly since last week, when China allowed health-care workers in Hubei province, the hardest hit part of the country, to lower the threshold for classifying patients as having the disease. Uncertainty about the effect of the coronavirus has propped up safe-haven assets such as gold and the dollar, which is trading near a four-month high.

U.S. Federal Reserve Chairman Jerome Powell told Congress last week that the disease’s spread may threaten global economic growth. The virus, first detected in Wuhan, China, is a World Health Organization-designated global health emergency which has killed almost 1,800 people worldwide and sickened more than 71,000. Most of the cases have been in China. Travel and other restrictions have been imposed both within China and by international trading partners.

But the quarantines may affect demand for physical gold in China, which the World Gold Council says is the world’s fastest-growing market for the yellow metal.

“Given the extent of the impact of the coronavirus in China, gold physical demand is likely to suffer,” UBS said in a Feb. 14 note quoted by Reuters. But “it is too early to estimate the effects.”

The dollar’s strength may also prove bearish for gold, as a stronger dollar typically curbs the yellow metal’s appeal as an alternate investment. And China, Hong Kong and Singapore pledged extra fiscal stimulus to curb the economic impact of the coronavirus, which could spur more risk-off trading.

Front-month gold futures rose 0.5% Friday to settle at $1,586.40 an ounce on Comex. The April contract gained 0.8% last week. Futures advanced 4.3% in January, the best monthly performance since August. Currently, the April contract is at $1,585.30. Speculators boosted their bullish positions in Comex gold in the week ended Feb. 11, according to the Commodity Futures Trading Commission’s Commitments of Traders report, released Friday.

Trading is likely to be lighter than usual Monday, as most U.S. financial markets, along with banks and government institutions, are closed for the Presidents Day holiday.

Silver rose 0.7% Friday to settle at $17.73 an ounce on Comex. The March futures increased 0.2% last week. They gained 0.5% in January, lagging gold’s advance.

Spot palladium, a metal used primarily in autocatalysts, rallied 4.9% last week. It climbed 18% last month, setting new records amid a supply crunch. Spot platinum slid 0.2% last week.

 

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