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Gold prices hit 7-year peak on coronavirus impact

Issac John /Dubai
Filed on February 20, 2020 | Last updated on February 20, 2020 at 05.24 am
Khaleej Times, Dubai, UAE, Gold, Prices

Prices of the gold have hit a critical crossroads, with macroeconomic forces poised to pull the yellow metal in either direction.

Gold lived up to its traditional "safe-haven" role during times of turmoil as it rallied on Wednesday towards a seven-year peak over widespread concerns about the global impact of the coronavirus epidemic.

Spot gold rose 0.6 per cent to $1,610.75 per ounce by 1116GMT. The metal jumped to $1,610.80 earlier, its highest since January 8, when gold hit its highest in nearly seven years. US gold futures rose 0.7 per cent to $1,614.

Precious metal analysts said pessimism over deepening economic fallout from the coronavirus outbreak in China is escalating, especially after Apple's warning that it will miss the sales target. Gold - also known as the 'bad-news metal' since invariably bad news is good news for gold - has been driven by several fundamental forces, analysts said. Prices of the yellow metal have hit a critical crossroads, with macroeconomic forces poised to pull the yellow metal in either direction, they said.

Chandu Siroya, managing director, Siroya Jewellers, and vice-chairman Dubai Gold and Jewellery Group, said the rally of gold is due to the heightened uncertainty prevailing across stock markets about the extent of coronavirus impact on the revenues of the major listed companies.

"The markets could easily target $1,650 per ounce. There is a sharp drop in the jewellery demand in all markets, including the UAE, as customers have come to terms with the new price reality. I don't see any significant price drop over the next few days," said Siroya.

Pradeep Unni, head of Strategic Business Development, Richcomm Global Services DMCC, said after much resistance, gold finally scythed the 2013 highs on concerns over the spread of coronavirus and how it would be impacting global growth.

"Many major cities and production hubs China are still at a total shutdown mode and there is hardly any indication when normalcy returns. Gold is already up 5.7 per cent this year as investors continued to flock the metal as an ultimate safe haven," said Unni.

"The impact of the virus outbreak on global growth is still unknown and there is speculation that the Federal Reserve will come under increased pressure to reduce interest rates to propel the economy. Jewellers and bullion traders should ideally use these high price levels to hedge their stocks," said Unni.

After breaching the psychological barrier of $1600 per ounce, gold is technically in a safe zone, he said. "There could be slight retracements, but if news about a more severe impact of the virus flows in, a swift rally to $1700 plus cannot be ruled out," said Unni.

As for how high gold prices can go, one bullion expert said that he is looking at initial resistance at $1,620 with his next target at $1,650.

Kitco.com 's senior technical analyst Jim Wyckoff said in the near-term, he is watching initial resistance at $1,619.60 an ounce, which was the seven-year high hit in January. "If that is breached on the upside it would open up another solid leg up in prices," he said.

Bart Melek, head of the commodity strategy at TD Securities, said expect gold to hit $1,700 an ounce. However, in the near-term, most analysts are watching resistance at $1,614 an ounce and at $1,632.

The Apple news is not going to be the only bad report out there. More weak data can be expected in the coming days that would force markets to price in more rate cuts from central banks, analysts said.

Even after Apple's announcement, many economists have noted that the full impact of the coronavirus is still unknown. Currently, more than 73,000 people around the world have been infected and more than 1,800 have died.

Colin Cieszynski, chief market strategist at SIA Wealth Management, said that with gold's new breakout, the yellow metal can push to between $1,670 and $1,680.

Most economists are watching to see how the coronavirus impacts the global economy and how central banks react to any potential weakness. The fact is that because of the impact the virus is expected to have on economic growth, it will be difficult for most central banks to tighten monetary policy

Experts believe that that if needed central banks and even governments will be ready to pump liquidity into markets to support economic growth and that is going to be good for gold. - issacjohn@khaleejtimes.com

author

Issac John

Editorial Director of Khaleej Times, is a well-connected Indian journalist and an economic and financial commentator. He has been in the UAE's mainstream journalism for 35 years, including 23 years with Khaleej Times. A post-graduate in English and graduate in economics, he has won over two dozen awards. Acclaimed for his authentic and insightful analysis of global and regional businesses and economic trends, he is respected for his astute understanding of the local business scene.


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