Gold prices reversed early losses on Thursday, impacted by the growth of the coronavirus in Wuhan, China. Gold prices hit a two-week high of $1564.6 USD/oz, as investors seek a safe-haven asset, fearing that the disease may spread further and impact the growth of the Chinese economy.
As of Tuesday, the virus has spread across China and has been confirmed in at least 16 countries. Wuhan, the origin of the virus, as well as the greater Hubei province, have effectively been locked down, with such measures being taken such as masks in public being mandatory.
This only adds to the growing list of economic and geopolitical uncertainties already affecting the new year, such as Brexit and tensions between the U.S. and Iran, which is only driving gold prices higher in the global markets.
Gold is traditionally an asset which thrives during times of economic uncertainty, as it is an asset which is historically stable, and able to retain its value over a long period, compared to currencies.
Our analyst Phil had this to say about the new trend in gold:
“With the US stocks pushing to the downside due to political events we can see traders falling back on gold. This could help us fill in the wick on the monthly time frame at $1610.60 USD/oz.”
For more check out Phil's Trade in 60 seconds here:
This current situation in China is reminiscent of the 2002-2003 SARS outbreak, which also originated in China and eventually spread to several other countries, leading to 8,098 cases and 774 deaths. However, if that epidemic is any indication, the impact of coronavirus may be short-lived and only have a modest impact on the global economy, especially if this case is more contained and less deadly.
At the time of writing, there have been more than 4515 reported cases of coronavirus across the world, with 106 reported deaths. However, this figure was reported by the Chinese government and has not been confirmed with any other organisation. China did not report the SARS outbreak to the World Health Organisation until 2003, and even went as far as to hide patients from WHO authorities.
As investors turn risk-on equities this week, both Gold and Silver experienced a significant sell off, based on news that the US may remove tariffs on China. This led to US Stocks recording new all-time highs, with the Dow Jones up over 2.3% this week and a safe-haven trade wind down, as Gold and Silver slumped 2.3% and 5.2%, respectively.
This news has still not been confirmed by US Trade authorities, however we could continue to see speculation drive markets for today's trading.
Gold and Silver, now trade at key support levels, wicking to the October 1st low of $1,460 per ounce, with buyers looking for an opportunity to "buy the dip" or look for shorter-term reversals. The chart below shows several ranges that Gold has formed over the last few months, and investors will be looking for this to remain consistent barring any other stimulus news, with bulls looking to potentially target a retracement towards the $1,475 mark.
The Bank of England gathered yesterday as two MPC members voted for an interest-rate cut, which weighed on GBP bulls, who are still fighting to hold up the 1.28 level. The pair reached fresh two-week lows, with bears now looking to breach the 1.28 handle. See chart below.
BOE Governor Mark Carney, in the post meeting conference, said that risks to UK growth remain skewed to the downside, suggesting the BOE could eventually shift towards a cut, with a view of supporting the economy during a potential downturn.
►The RBA, who held interest rates, said that Australia is slowly coming out of a slow patch, with record rates at all-time lows, the Aussie Dollar aims to breach the 70 cent mark against the US Dollar.
► US Stocks continue to trade at all-time highs and Trump is very happy, however on the Corporate side, there are key Tech earnings coming out soon which could change the momentum shift