Gold firms as China virus fears keep safe havens in demand

Gold prices held firm on Thursday as concerns of a slowdown in global growth due to a virus outbreak in China weakened risk appetite among investors.

Spot gold was up 0.1% at $1,577.69 per ounce by 10:07 a.m. EST (1507 GMT) after rising 0.7% in the last session.

U.S. gold futures were 0.4% higher at $1,577.

“We have a bit of risk off in the market due to fears of global health from the coronavirus,” said Frank Cholly, senior market strategist at Chicago brokerage RJO Futures.

The flu-like virus, which originated in China and has spread to over 15 countries, has disrupted global travel and prompted several companies to suspend operations in the Asian country.

Fears of a hit to growth in the world’s second-largest economy triggered a sharp sell-off in financial markets, pushing investors toward safe havens like gold, the Japanese yen and the Swiss franc.

“The coronavirus economic impact is growing and a flight to Treasuries and gold will likely remain the favorite trades on Wall Street,” Edward Moya, a senior market analyst at broker OANDA, said in a note.

Federal Reserve Chair Jerome Powell also noted the risks of a short-term slowdown in China, including to the U.S. economy, following the central bank’s widely expected decision on Wednesday to keep interest rates unchanged.

“The Fed is not lowering rates, they’re in a holding pattern, but we are going to be in a low-rate environment for some time and that favors the gold market,” Cholly said.

Lower U.S. interest rates put pressure on the dollar and bond yields, increasing the appeal of gold and other non-yielding assets.

U.S. Treasury yields dipped to three-month lows on Thursday and a closely watched part of the yield curve briefly inverted.

The World Health Organization will reconvene on Thursday to decide whether the coronavirus outbreak constitutes a global emergency.

“Technically, if the (gold) price can surpass the high reached three days ago at (around) $1,585, we will have another signal of strength,” Carlo Alberto De Casa, chief analyst at broker ActivTrades, said in a note.

Elsewhere, palladium fell 0.5% to $2,277.03 per ounce, having hit a record high of $2,582.19 on Jan. 20 on supply concerns.

Russian mining company Norilsk Nickel said on Wednesday its Global Palladium Fund would deliver three tonnes of palladium ingots to the market from its current stock to provide short-term relief to tight supplies.

Silver gained 1.7% to $17.85, while platinum was steady at $974.58.

Reuters

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