The prices of gold fell on Wednesday on the recovery of the U.S. dollar and the effective response of the Chinese government to the outbreak of the novel coronavirus. Investors also downplayed the potential impact of the outbreak on the global economy.
U.S. gold futures went down by 0,4% to $1,551 an ounce. Spot gold price declined by 0.4% to $1,551.13 an ounce as of 0424 GMT.
There are already 440 confirmed cases of the novel coronavirus infection and nine had died. But the Chinese government’s response was better compared to the 2020 SARS outbreak. The source of the initial infection was immediately traced to a live animal market in Wuhan. And the novel coronavirus was quickly identified given that many other infections can cause respiratory diseases because it is winter in China. Chinese researchers have also developed a diagnostic laboratory test that will be used to identify the animal species that served as the source of the virus.
The effectiveness of China’s response eased fears of a global pandemic and lifted the Asian equities market. But there are still concerns about the impact of the outbreak on the tourism sector and consumer demand. Some investors have also expressed concerns about possible transmission of the virus because many people are expected to visit China for the celebration of the Lunar New Year which will start this weekend.
According to Joni Teves, a precious metals analyst with UBS, the movement in the gold price and demand is simply a continuation of market consolidation that started a couple of weeks back. She expects the market to return its focus on key factors such as interest rates and the U.S. dollar.
AxiCorp chief market strategist Stephen Innes added that the stronger equities market is hindering the momentum of the precious metal. He also highlighted the low physical demand for gold. India appears to have sufficient supply and the expected increase in demand during the Chinese New Year is not happening.
Further adding pressure to the yellow metal is the strengthening of the greenback which makes the bullion more expensive for investors using other currencies.
Meanwhile, Reuters’ technical analyst Wang Tao predicts that spot gold prices may soon drop to $1,535.63 an ounce.