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Gold rebounds as virus spread fuels rate cut hopes

Spot gold rose 0.5% to $1,643.70 per ounce by 1302 GMT, having slumped as much as 1.9% in the previous session as investors took profits.

Reuters|
Last Updated: Feb 26, 2020, 09.29 PM IST
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Reflecting appetite for gold, holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.7 per cent to 940.09 tonnes on Tuesday.

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Gold rebounded on Wednesday, a day after it posted its biggest one-day decline in nearly four months, as the coronavirus scare spurred safe-haven flows towards bullion and raised hopes of interest rate cuts by major central banks.

Spot gold rose 0.5% to $1,643.70 per ounce by 1302 GMT, having slumped as much as 1.9% in the previous session as investors took profits. U.S. gold futures eased 0.2% to $1,646.

"It is a typical flight into safe havens after the coronavirus has spread not only to the Asian countries but also to Italy and Middle East," said Peter Fertig, an analyst at Quantitative Commodity Research.

"There's a possibility that the safe-haven has not yet reached its peak. The economic impacts have to be stronger than the market is currently pricing in. There is already a certain possibility for another Fed rate cut by 25 basis points."

Investors have pushed up expectations for rate cuts from the U.S. Federal Reserve and European Central Bank. China's central bank has also vowed it will take further steps to support the virus-hit economy.

Lower interest rates reduce the opportunity cost of holding non-yielding bullion.

Gold is up more than 3% so far this month, having hit a 7-year high of $1,688.66 an ounce earlier this week as the rapidly spreading coronavirus aggravated fears of an economic slowdown.

The United States alerted Americans on Tuesday to begin preparing for the spread of coronavirus in the country as outbreaks in Iran, South Korea and Italy escalated.

The effects of the outbreak are likely to reverberate beyond China as most major economies in the region are expected to either slow significantly, halt or shrink in the current quarter, Reuters polls found.

Further lifting demand for gold, global stocks tumbled for the fifth straight day, while U.S. bond yields held near record lows.

"In this environment, gold remains in considerable demand as a safe haven and crisis currency. It recouped some of its initially high losses yesterday ... profiting from ongoing ETF inflows," Commerzbank analysts wrote in a note.

Holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, climbed to the highest since November 2016 at 940.09 tonnes on Tuesday.

Among other precious metals, palladium gained 1.4% to $2,735.73 per ounce, while platinum fell 0.4% to $921.91, having touched its lowest in two months earlier.

Silver rose 0.2% to $18.03 an ounce, having fallen as much as 4.1% in the previous session.
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