Price of Gold Fundamental Daily Forecast – Prices Tumble Amid Mixed Reaction to Coronavirus Scare

James Hyerczyk

Gold futures are trading lower shortly before the regular session opening after giving back earlier gains that took the market to its highest level since January 8. Gold rallied earlier in the session as demand for risky assets plunged amid fears of contagion of the coronavirus in China. The market retreated from its high after safe-haven Treasurys and Japanese Yen gave back their gains and U.S. equity markets bounced off their lows.

At 12:44 GMT, February Comex gold is trading $1556.50, down $3.80 or -0.24%. The high of the session is $1568.80.

Coronavirus Outbreak Concerns

Risky assets fell and safe-haven assets rose earlier in the session after a coronavirus outbreak that began in the central Chinese city of Wuhan raised fears of contagion. Investors were also rattled by the news that the World Health Organization (WHO) called a meeting for Wednesday to consider declaring an international health emergency.

The contagion fear was fueled by worries the virus would spread during the Chinese Lunar New Year celebration, which begins this weekend.

“Chinese New Year holidays are going to worsen the situation as people are bound to travel in China. The fear of outbreak is going to drive up demand for gold for a couple more days,” said Margaret Yang Yan, a market analyst at CMC Markets.

Price Action Suggests Trader Overreaction

The bullish view is not shared by everyone, however.

“The virus is like a double-edged sword,” said Quantitative Commodity Research consultant Peter Fertig.

“In one way it is boosting gold, but in the longer term, if the virus kills thousands that will impact gold negatively on the physical side,” Fertig said, adding a stronger dollar is weighing on gold prices at the moment.

Additionally, Jeffrey Halley, senior market analyst at OANDA, aid in a note, “However, it is hard to see gold progressing above $1,600 an ounce until the health emergency escalates sharply and becomes a regional problem.”

IMF Forecasts Supportive for Gold

Global economic growth for this year has been revised downwards from 3.4% to 3.3%, according to the International Monetary Fund (IMF). The IMF has become less optimistic about global growth, warning that the outlook remains sluggish and there are no clear signs of a turning point.

The “sluggish” forecast likely means that central banks will keep interest rates at or near historically low levels. Furthermore, it opens the door to more creative central bank stimulus like Quantitative Easing (QE) and fresh fiscal stimulus. This could provide support for gold throughout the year.

This article was originally posted on FX Empire