Gold touched a seven-year high at $1,609.64 per ounce on Wednesday fuelled by Coronavirus concerns. On CME Group’s New York Mercantile Exchange (NYMEX), the day saw a heavy surge in gold futures contracts, which will expire in April 2020.
While the volumes exceeded 1.20 lakh contracts against just 617 contracts for March 2020 expiry, the metal touched a high price of $1,614.4 per ounce. For March 2020 contracts, it touched a high of $1,611.6 per ounce.
Over the last seven years, since Feb 20, 2013, gold had touched the high price of $1,613.08 on March 21, 2013 following $1,610.8 on March 19. World Gold Council data reveals that in the last one month, between January 20 and February 19, gold prices have inched up by 3.37% to $1,609.64 per ounce.
However, markets experts believe that gold prices’ breach of the psychological level of $1,600 is because of continuing concerns in the growth of the Coronavirus (COVID-19) epidemic.
According to the World Health Organisation, as on Feb 18, there were 73,332 confirmed cases of COVID-19, an increase of 1,901 cases in two days. Most of the cases are in China, and the death toll has increased to 1,870.
“However, we sense that markets will eventually start pricing in the fact that worst of Coronavirus crisis seems to be over, with new infection rates and deaths peaking,” says Jain. He says the number of survivors from the Coronavirus infections is reported around 14,000, which indicates that a growing number of people are able to survive the illness.
Jain adds that on the economic side, restrictions on travel in Wuhan and other cities of Hubei province have certainly dented Chinese manufacturing activity but the impact is deemed to be temporary. “During a similar epidemic in the past (SARS), the economic impact was very short-term in nature, with the health-scare induced slowdown not persisting for more than three-four months,” he adds.
The analyst believes that the markets expect that Chinese efforts to stimulate the economy will front-load demand into the second half of the year. “On price outlook, we opine that Gold will retreat lower from the current highs once the adverse effects of Coronavirus fade and global economy stabilises,” Jain adds.
However, until the Covid-19 fears actually fade, there is enough reason to believe that gold will continue to offer its safe-haven appeal to investors. Because, once the virus impact reduces there are high probabilities that leading central banks around the globe, beginning with China, will bring unprecedented stimulus measures to boost growth in their respective economies.
China’s central bank—the People’s Bank of China (PBOC)—on Monday offered 200 billion yuan ($29 billion) worth of one-year loans to its banks at 3.15%, the lowest rate since 2017 in a bid to cushion its economy from the epidemic’s impact.