Gold Price Well Above US$1,600 as COVID-19 Cases Increase

Gold continued its ascent above US$1,600 an ounce as global markets were sent into a tailspin on Monday (February 24). Growing concern that COVID-19 is a global epidemic has bolstered the case for safe haven assets as the death toll outside of China begins to steadily increase.

There are currently more than 80,000 confirmed cases of the novel respiratory virus in 28 countries, with the vast majority being in China, and over 2,700 deaths have been attributed to the illness.

Concern that the long-term impact of the virus may be more widespread than first believed drove gold to a new seven year high in pre-trading hours on Monday (February 24), when it topped US$1,686.10.

“There has been so much complacency in recent weeks from investors, despite clear signs that China’s economy is facing a large hit and that supply chains around the world were being disrupted,” said Russ Mould, investment director at AJ Bell.

Mould noted the initial reaction markets displayed in January before bouncing back, indicating investors were not viewing the coronavirus as a long-term problem. “They may now be reappraising the situation.”

Gold has pulled back from US$1,686 and has been trading between US$1,650 and US$1,660 since markets opened on Tuesday (February 25).

As the number of confirmed global cases of COVID-19 continues to climb, analysts are beginning to forecast that the impact of the epidemic will stretch into the second quarter of 2020, which will likely impact the earnings of companies while adding tailwinds to the gold story.

Jeffrey Halley, senior market analyst at OANDA, said in a note, “Gold has finally established some serious momentum, and more negative coronavirus headlines will see a test of US$1,700 an ounce on haven flows, sooner rather than later.”

Goldman Sachs (NYSE:GS) forecast last week that gold will reach US$2,000 if markets continue to be weighed down by the outbreak, which was first reported in late December of last year.

“The coronavirus represents the most uncertain macro risk markets have faced in years,” Alec Young, managing director of global markets research with FTSE Russell, said in a report on Monday. “As the virus spreads to Europe, the threat to global growth moves beyond China and the global supply chain and now directly threatens the heart of European manufacturing.”

There is also speculation that central banks may move to lower interest rates in an effort to offset some of the epidemic-induced economic slowing that is beginning to manifest.

The global and domestic impact of COVID-19 is one of the key topics at the National Association of Business Economics’ policy conference, currently underway in Washington.

Although Cleveland Federal Reserve President Loretta Mester told attendees she remains cautiously optimistic and would like interest rates to remain unchanged from the current level of between 1.5 and 1.75 percent, many analysts at the event believe the US Federal Reserve will have no choice.

Even though the World Health Organization has not listed COVID-19 as a global pandemic yet, one economist has called the outbreak an “economic pandemic.”

Growing consensus among economist I am speaking to at #nabe2020 is that the Fed will have to cut and do so soon – March – in response to COVID-19. It may not be called a health pandemic yet but it is an ecomomc pandemic.

— Diane Swonk (@DianeSwonk) February 24, 2020

Silver has also benefited from gold’s upward trajectory and the increasing appetite for safe havens. The white metal inched towards a three year high on Monday when it reached US$18.86 an ounce.

In off-trading hours silver pulled back, but remained above US$18 on Tuesday. At 11:22 a.m. EST that day an ounce of gold was selling for USS$1,648.28.

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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.