The prices of gold declined slightly on Tuesday after reaching its one-week high during the previous trading session. The return of Chinese employees to work after the extended Lunar New Year holidays lifted the U.S. dollar and the Asian stock market which in turn pushed down bullion prices.
U.S. gold futures dropped by 0.5% to $1,571.70 an ounce and while spot gold prices fell by 0.2% to $1,568.11 an ounce. The precious metal reached $1,576.76 yesterday, its highest pricing level since February 4.
The Chinese government reported 108 new deaths yesterday, raising the death toll to 1,016. Though Chinese workers have started returning to work, it remains uncertain how quickly the country’s production can recover. This uncertainty encouraged investors to switch to the safety of the Japanese yen and the U.S. dollar.
Warren Patterson, an analyst with ING, noted that the firmer dollar has been limiting gold’s gains from late January to early February. He said that the new price direction of the precious metal would depend on central banks’ response to the economic impact of the coronavirus outbreak. If there is an easing of monetary policies, then there will be stronger support for gold prices.
Analysts expect Chinese lawmakers to launch additional economic stimulus to address the negative effects of the outbreak. These may include interest rate cuts and more fiscal spending.
In the U.S., Atlanta Federal Reserve Bank President Raphael Bostic and San Francisco Federal Reserve Bank President Mary Daly downplayed the impact of the outbreak on the U.S. economy. Federal Reserve Chairman Jerome Powell is expected to express the same opinion in his semi-annual testimony before the U.S. Congress and the Senate on February 11 and 12. The Fed is likely to keep the interest rates low because of subdued inflation.
But some analysts believe that the potential impact of the coronavirus outbreak on the global economy could change the Federal Reserve’s position on interest rates.
In a note, AxiCorp chief market strategist Stephen Innes highlighted the importance of the Fed policy on the trajectory of gold prices. He also played down the impact of the decline in U.S. Treasury yields as being supportive of the bullion.