As the number of new coronavirus cases is growing at a stratospheric pace, gold prices are focused on a virus’ economic aftermath as frightened investors keep the gold bid alive.
Why is this happening? For decades, gold has remained one of the most popular investment tools during times of market turbulence and geopolitical uneasiness. The metal’s intrinsic value and safe-haven properties have always attracted investors looking to hedge against any uncertainty.
And now that the coronavirus is turning into a global threat that is influencing almost all financial markets, gold prices have soared to reach new highs.
Are you wondering whether it is a good time to buy this shiny metal? We have you covered. In this article, we take a look at the factors that influence the commodity’s price and review its recent performance.
In addition, you will find a video where our chief market strategist – David Jones – gives the latest gold price analysis and suggests some up-to-date trading tips.
Rising fears: coronavirus impact on gold price
The precious metal has mainly been in a bullish trend for quite some time now. On January 8, 2020, it hit the $1,612 mark, hovering around its highest point in almost seven years. Gold has soared by about a third since August 2018.
Last month, many analysts argued that the commodity’s blistering rally has only just begun. Historically low interest rates, a weaker dollar and the uncertainty of the upcoming US presidential election have supported their point of view.
This month, however, China's coronavirus has stolen the show, becoming the key price driver. Experts predict this epidemic will have a solid negative influence on the macros.
The latest data from China suggest the number of people infected has risen beyond 40,000, and the death toll has crossed the 900 mark. On Sunday, China’s Global Times reported that cases from Hubei, the epicentre of the disease, continue to increase: “The capital city of the (Hubei) province (Wuhan) reported 14,982 cases as of Sunday, with the death rate hitting 4.06 per cent.”
Caroline Bain, a chief commodities economist at Capital Economics, commented on the recent gold price hike: "Whatever news we get on the virus will determine the direction of the price. In the last couple of days, the number of infections has been lower. Potentially, we are looking at something that can be brought under control fairly quickly. If that were the case, I could see gold falling back."
However, Bain expects gold to remain supported as long as uncertainty prevails: "There is so much uncertainty still: both the virus itself and the economic impact, which is even less clear. As long as that uncertainty is there, the price of gold will be supported."
What’s been happening to interest rates?
It is crucial for investors to keep an eye on the central banks worldwide, as a number of policymakers have already started to respond to the coronavirus. Rhona O'Connell, a head of Market Analysis, EMEA & Asia Regions at INTL FCStone, predicted that any additional easing may boost the case of holding gold long-term.
She said on Wednesday: "The potential industrial fallout from coronavirus is already leading a number of governments to cut interest rates or add to easing activity, while the US 10-year bond has been dipping in and out of the negative territory. This is all positive for gold in a risk-averse environment, although by definition we cannot know for how long it will be before this outbreak is controlled."
Last week, some Asian governments took action, saying that many businesses would be affected by the deadly disease. The Philippines has cut interest rates by 25 basis points to 3.75 per cent in response to the coronavirus. Thailand’s central bank has also cut rates by 25 basis points to a record low 1.0 per cent.
Caroline Bain has also commented on this matter: "If we are looking at prolonged epidemic, then one would imagine that central banks would cut rates and it would be another factor supporting the gold price."
However, it’s not all about coronavirus news
Apart from the coronavirus updates, the US employment report was published last week. Figures beat the analysts’ expectations on the upside with 225,000 new jobs created in January. And while the unemployment rate increased to 3.6 per cent, the labour-force participation rate ticked up to 63.4 per cent — its highest point since June 2013.
According to Paul Ashworth, chief economist at Capital Economics in Toronto: "Employment numbers fit with the idea that growth will accelerate gradually this year. It is not going to be dramatic. In the first half, we got the disruptions caused by production of Boeing being put on hold and also indirect impact coming from the coronavirus in China.”
The US' strong economic figures have negatively weighed on the latest gold price analysis and forecast.
Analysts say that though gold is getting support from fears over the coronavirus, weaker physical demand for the metal, in China in particular, is capping gains.
Gold price analysis: the technical perspective
Due to those mixed signals impacting the precious metals market, gold has continued to swing back and forth during the last week.
It hit its two-week lowest of $1,547 on Wednesday, before gaining upward momentum. On Friday, gold fell once more. However, as traders bought another dip, prices quickly climbed above $1,570 per ounce level. The precious metal started today’s trading at $1,576 per ounce.
Do you want to learn what has been recently happening to gold from a technical point of view and find out how to profit off the volatility? Wonder where is the price of this precious metal heading next? Watch David Jones, chief market strategist at Capital.com, make his own gold chart technical analysis and review the commodity’s most recent performance:
Always stay on top of the latest gold chart analysis by subscribing to Capital.com’s YouTube channel.
Time to buckle up?
The coronavirus outbreak has had a serious impact on the markets so far, and gold is no exception.
At the end of January, the gold price had climbed up to a four-week high. However, since then, it has recorded a slight decrease. Regardless, most experts do not believe this to be a lasting trend.
Contrariwise, the further gold uptrend is likely to continue due to the economic uncertainties caused by the coronavirus. As investors tend to shift towards this precious metal as a safe haven, the price of gold is likely to remain pretty high throughout February.
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