Gold hits 7-year high on virus fears

[SINGAPORE] Gold traded near a seven-year high on concern that the coronavirus outbreak will retard global growth, coupled with speculation the Federal Reserve will ease monetary policy before the year-end. Palladium held near a record after building on a powerful rally.

Bullion has risen at a time US stocks are at an all-time high even as traders weigh the disease's impact. While Hubei, the centre of the outbreak, reported fewer new cases after another revision, there are signs of deepening economic damage. In addition, two deaths were reported in Iran and two people from a quarantined ship in Japan died, highlighting the threat outside China.

The traditional haven has climbed 6 per cent this year amid mounting concern over the effects of the virus, with companies from Apple Inc to Burberry Group plc cutting guidance. While minutes from the latest Fed meeting showed that officials indicated they could leave rates unchanged for many months, futures traders maintained expectations for at least one cut over 2020.

"Support for the yellow metal is driven by economic uncertainty related to the coronavirus – that is, how long could the pandemic last and what will its ultimate impact be on world economic growth?" said Gavin Wendt, senior resource analyst at MineLife Pty in Sydney.

"Importantly, we've seen gold performing strongly in a range of currencies, hitting new all-time highs during 2019 and 2020," said Mr Wendt. That reflects not only investor uncertainty, but also a likelihood more stimulus will be required, including lower rates, to boost activity in a post-coronavirus world, he said.

Spot gold traded at US$1,607.95 an ounce at 3.02pm in Shanghai, down from Wednesday's peak of US$1,612.98, which was the highest since March 2013. Holdings in global exchange-traded funds backed by bullion have risen to a record, and are on course for a sixth weekly expansion.

Prices may top US$1,650 over the coming weeks, according to UBS Group AG's Global Wealth Management unit, which says it remains long on the precious metal.

"With US equity valuations elevated, any further upsets could see another bout of volatility, a further rally in government bonds and a higher gold price," analysts Wayne Gordon and Giovanni Staunovo wrote in a report dated Feb 19.

Palladium climbed 0.3 per cent to US$2,725.22 an ounce. The metal used to curb emissions from vehicles touched an all-time high of US$2,849.61 on Wednesday on concerns over a widening global deficit, and as the Chinese government pledged to stabilise car demand in the country.

Among other main precious metals, silver fell 0.7 per cent, while platinum fell 1.3 per cent.

BLOOMBERG