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Gold to climb higher amid concerns over spread of CoronaVirus

Jigar Trivedi

On a week-on-week basis, Comex gold has appreciated by 0.90 percent and MCX February contract rebounded by 1 percent. Even though, the greenback has closed with gains for the third straight week. The December existing home sales in the US improved to 5.54 million from 5.43 million forecast and 5.35 million a month ago. The weekly initial jobless claims marginally improved as it stood at 2,11,000 against forecast of 2,15,000 a week ago.

US Markit manufacturing PMI for January stood at 51.7 against forecast of 52.5 and 52.4 a month ago. Activity quickened for US service providers at the start of 2020 at the same time manufacturing stumbled. US homebuilding surged to a 13-year high last month as activity increased across the board, while production at factories increased for a second straight month. Chinese Vice Premier Liu He said Beijing and Washington signing the Phase 1 deal had created a beneficial condition for future Sino-US relations.

According to the IMF’s latest report, global growth for this year is projected at 3.3 percent, which is 0.1 percentage point less than the forecast made in October. The world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, said its holdings rose to 900 tonnes as on Friday from 898 tonnes on Monday. Sudden outburst of CoronaVirus in China has pushed the investment demand marginally. The death toll has increased however the upside was limited since the World Health organization in a latest report said that there is an emergency in China as of now, not a global emergency. But, more than 1,000 people have been diagnosed with the new CoronaVirus in China and dozens of others are dead, while the US, Europe and Malaysia confirmed new cases as travellers return home from the outbreak’s centre in Wuhan. Due to the same reason, speculative buying emerged in the yellow metal.

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We mentioned before that gold has always performed with a positive undertone in January at least on 8 out of last 10 years. MCX gold has risen by 3.25 percent in January due to a geopolitical risk between the
US and Iran and epidemic in China. The Pentagon spokesman said that eight of the affected service members returned to the United States from an American military hospital in Germany. The Defense

Department said 34 American service members have traumatic brain injuries from Iranian airstrikes on Al Asad Air Base in Iraq, contradicting President Trump’s dismissal of injuries among American troops this week.

Sentiment is positive due to concerns related to CoronaVirus in the China and recent downgrade of global growth by the IMF at the Davos 2020 event. But the dollar has strengthened so the upside is limited. Chinese consumption, a key growth driver in an economy transitioning from investment, is set to take a blow from the CoronaVirus outbreak that hit just as millions of people set out on vacation, S&P Global Ratings said.

From an economic data point of view, US will release bunch of important data like new home sales, durable goods orders for December, S&P housing price index for November, consumer confidence for January, pending home sales for December, Federal Reserve & Bank of England monetary policy meet and outcome, US Q4 GDP (P), Core PCE price index December, personal spending and lastly Michigan consumer sentiment.

Hence we expect the dollar to be volatile so as the yellow metal. The new CoronaVirus in China has killed 80 and infected more than 2,000, as residents of Hubei province, where the disease originated. Gold is likely to climb higher as rising concerns over the spread of a virus outbreak in China and its potential economic impact prompted investors to buy the safe-haven metal.

(The author is Fundamental Research Analyst – Commodities at Anand Rathi Share and Stock Brokers.)

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Source: Money Control