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Coronavirus concerns buoy Gold's safe haven demand

A weekly market summary for gold, Feb 3-7

AS the coronavirus spreads to many countries worldwide, and as the number of reported cases continues to rise along with the increasing number of deaths, concerns that the virus would get worse before it gets better have underpinned support for the precious metal as a safe haven asset.

Gold will likely continue to be a hedge for investors as the market focus returns to the US presidential election and Chinese companies walking away from delivery contracts.

What should investors look out for in the longer term?

The spread of the virus continues to lower expectations of economic growth in China and other Asian countries. This has prompted central banks to be more accommodative. The People's Bank of China has infused a tremendous amount of capital in their economy. Other central banks from Japan to the EU have followed suit to increase liquidity. Liquidity in markets is often bullish for gold.

Further, sentiment that the epidemic may worsen into a pandemic lingers on, as no time frame for eradicating the virus has been publicly discussed, is going to provide further support to gold prices. This is despite the fact that epidemics from recent historical experience takes its toll for about two quarters of the year before things are back to normal.

On top of this, gold prices have remained supported despite the rebound of equity prices in Asia and continued stock rally in the US.

Technical Analysis for Spot Gold (XAUUSD)

Gold prices have found support this week after the sell down after reaching highs of US$1,611 an ounce. The US$1,500 level would continue to provide support, as the precious metal continues to show bullish tendencies and a continuation of the positive trend scenario will see price levels test US$1,594 and then US$1,611 by extension. However on the flip side, should the technical support of US$1,500 collapse, gold prices would test levels of US$1,535 and US$1,520 an ounce level.

Weekly Market Assessment: Supportive and Mildly Bullish

  • The writer is Senior Manager, Commodities at Phillip Futures Pte Ltd