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Gold Is Taking on $1,700 amid Rising Coronavirus Fears

Commodities / Gold & Silver 2020 Feb 26, 2020 - 10:20 AM GMT

By: Arkadiusz_Sieron

Commodities

Gold rally goes on, reaching almost $1,700 per ounce. What the heck is just happening in the precious metals market?

Gold Rallies Above $1,680

Wow, what an escalation! On Thursday, we reported that gold jumped above $1,600. On Friday, its price surpassed $1,640, as the chart below shows. And today morning, it has rallied even further, reaching $1,684.


Chart 1: Gold prices in 2020 (London P.M. Fix).



It means that the price of gold has already risen about 11 percent this year, and more than 8 percent since the coronavirus epidemic outbreak in China. It confirms that gold is a safe-haven asset.

Coronavirus Fears Mount

The new coronavirus, which has been officially named “COVID-19”, caused a real emotional roller-coaster among investors. They alternately panic and calm down. When Apple announced lower profits than expected due to the coronavirus and disrupted manufacturing production in China, the stock markets plunged. But they rebounded later. And they plummeted again, because of the multiple outbreaks beyond China.

As of today’s morning, there were 77,150 confirmed cases in mainland China and 79,434 confirmed cases in the whole word. The total death toll was 2,620, among which 27 deaths occurred outside mainland China. This number is still very low, especially compared to the grave situation in the country of origin, but one week ago, only five deaths had taken place outside China. Major outbreaks were reported in Iran, South Korea and Italy, where, respectively, eight, seven and three people died.

In South Korea, 70 additional coronavirus cases have been confirmed on Monday, bringing the country’s total number to 833. Italy reports 157 total cases, while Iran 43. The government of South Korea has increase its anti-virus alert to the highest level, allowing temporary closures of schools and limiting flights to and from the country. Meanwhile, Italian authorities have put about a dozen towns in the northern part of the country into quarantine, closed public buildings, and banned public gatherings, including carnival events in Venice, in order to contain the biggest coronavirus outbreak in Europe.

The increase in cases in Iran, South Korea and Italy renewed fears that the new coronavirus is spreading globally despite all the travel restrictions. These concerns led to the sell-off in the global stock markets. Indeed, the Stoxx Europe 600 Index dropped 3.4 percent, while the South Korea’s benchmark dropped 3.9 percent. Meanwhile, futures on the three main U.S. stock indexes were all down more than 2 percent, while the long-term bond yields sank to their lowest level since 2016. The S&P 500 has dropped around 1.4 percent since its peak, as the chart below shows.

Chart 2: S&P 500 Index in 2020.

Implications for Gold

What does it all mean for the yellow metal? Well, the renewed fears are clearly positive for the gold prices. However, these fears may be a bit overblown. The coronavirus is slowing in China. Although it may be gaining traction elsewhere right now, it should be contained ultimately. So, when the fears recede, the demand for the safe-haven assets might decrease. The correction is, thus, possible. But correction does not imply the bear market. Actually, I am of the fundamental opinion that the bull market in gold has begun some time ago. And, importantly, the recent fears have pushed the long-term interest rates down. The yield curve has inverted again. This inversion will revive the recessionary fears and push the Fed to cut the federal funds rate at least once this year. After all, we would have already had a full-blown recession, but Fed quickly adjusted its monetary policy in a response to the inverted yield curve, providing additional accommodation. With fears mounting and yields declining, the US central bank could be forced to intervene again. In such an environment, gold should shine.

If you enjoyed the above analysis, we invite you to check out our other services. We provide detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. If you’re not ready to subscribe yet and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!

Arkadiusz Sieron
Sunshine Profits‘ Market Overview Editor

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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