The prices of gold barely moved early Tuesday as the stronger U.S. dollar counterbalanced fears of economic turmoil resulting from the coronavirus outbreak in China.
U.S. gold futures slipped by 0.2% to $1,580 an ounce but spot gold prices remain unchanged at $1,575.67 an ounce as of 0331 GMT.
The dollar gained 0.4% yesterday, its highest increase since January 2. It was boosted by the rebound in U.S. manufacturing activity in January spurred by a flow of new orders. This is the first production growth after five consecutive months of contraction. The stronger dollar lowered the demand for the yellow metal because it made the bullion more expensive for investors using other currencies.
The 2019-nCoV which originated in Wuhan has already killed 427 people including one in the Philippines and another one in Hong Kong. The situation has forced the Chinese government to accept the White House’s offer to allow American health experts to help study and fight the virus. The World Health Organization (WHO) has already declared the outbreak as a global emergency last week.
The outbreak has also compelled traders to set gold prices based on a June 2020 interest rate cut in the U.S. But Raphael Bostic, president of the Atlanta Reserve Bank and one of the officials that set monetary policy, believes the situation does not warrant an interest rate reduction. He said the American economy is going strong. Bostic explained that businesses have not changed their investment or hiring plans, the employment rate is close to the maximum level and the inflation rate is steady.
Meanwhile, the Asian stock markets gained slightly today but investors remain cautious as they wait for further economic stimulus from the Chinese government. The People’s Bank of China (PBOC) has already injected 1.2 trillion yuan to the economy and reduced reserve repo rates. But some analysts believe that more needs to be done to offset the negative economic effects of the virus outbreak.
According to Warren Patterson, an ING analyst, despite the minor setback today, the precious metal remains supported by the uncertainty surrounding the impact of the outbreak on the Chinese and the global economy. He also noted a market shift to safe-haven assets as reflected in the holdings of exchange-traded funds.
Reuters’ technical analyst Wang Tao expects spot gold prices to be in the $1,573-1,585 an ounce range. A move away from this level could point to a new pricing direction.