Gold little changed as investors assess virus impact, await Fed decision

[BENGALURU] Gold prices were little changed on Wednesday after falling 1 per cent in the previous session, as investors evaluated the economic impact of the coronavirus outbreak in China and awaited a policy decision from the US Federal Reserve due later in the day.

Spot gold was up 0.1 per cent at US$1,567.18 per ounce by 0646 GMT. US gold futures fell 0.2 per cent to US$1,566.10.

The virus has caused panic in the market as it is spreading quickly and there is little known about it. It has claimed 132 lives so far and infected nearly 6,000 in China.

"Any economic impact to China is unquantifiable at the moment. If we're still in this situation in a month from now, we are going to see some growth issues, but at the moment we are just speculating," said Jeffrey Halley, senior market analyst, Oanda.

If there is an escalation in the crisis, gold prices can breach the US$1,600 an ounce level, he added.

Bullion is seen as a safe store of value during times of economic and political turmoil.

Asian shares erased earlier gains as a spike in new cases of the virus sent Hong Kong stocks tumbling on resumption of trade after the Chinese New Year break.

A brief inversion of the US Treasury yield curve on Tuesday for the first time since October left investors unsettled as it often precedes a recession.

Meanwhile, the dollar held close to a near two-month high hit in the previous session, making gold expensive for holders of other currencies.

Investors are now waiting for the US central bank's monetary policy statement due at 1900 GMT. Analysts and investors widely expect the Fed to stand pat on interest rates.

"The main driver for gold this year will be strategic inflows as it will continue to be viewed as an attractive diversifier for investor portfolios in an environment where rates remain low," UBS strategist Joni Teves said.

The Fed is expected to make a slight increase on the interest it pays on excess reserves held at the central bank in a move, aimed at lifting the effective federal funds rate, currently near the bottom of its target range.

Lower interest rates reduce the opportunity cost of holding non-yielding bullion.

Among other precious metals, palladium advanced 0.4 per cent to US$2,298.70 an ounce, while platinum rose 0.3 per cent to US$988.93.

Silver rose 0.3 per cent to US$17.49, having dipped to its lowest since Dec 23 at US$17.35 earlier in the session.

REUTERS