The prices of gold skyrocketed to its highest level in over two weeks on Monday because of fears that the rapid spread of the coronavirus could negatively affect China’s economy. The situation prompted investors to abandon stocks and other riskier investments in favor of safe-haven assets.
U.S. gold futures increased by 0.4% to $1,578.30 per ounce. Spot prices reached its highest level since January 8 earlier in the trading session at $1,586.25 an ounce before settling at $1,579.11 an ounce as of 0433 GMT.
The coronavirus scare outbreak has already infected more than 2,000 and killed 80 people in China. According to the National Health Commission, the transmission ability of the virus is getting stronger and it is infectious even during its incubation period. To prevent the spread of the virus, Hong Kong has banned Hubei residents from entering the city.
The virus situation in China has led to a decline in the Asian equities market and an increase in the valuation of the Japanese yen. It has also affected the celebration of the Lunar New Year which usually attracts hundreds of millions of visitors. To strengthen the control and prevention of the coronavirus, the State Council has decided to extend the New Year holidays to February 2.
According to AxiCorp chief market strategist Stephen Innes, gold prices moved up because the risks associated with the coronavirus drove investors away from the equity markets and into the safe-haven metal. He believes that the outbreak will definitely cause a certain degree of damage to the Chinese economy.
Jeffrey Halley, OANDA’s senior market analyst, added that the price rally of the bullion depends on developments related to the Chinese coronavirus outbreak. He expects the next resistance price level of the precious metal to be at $1,600 per ounce.
Meanwhile, investors and traders are waiting for developments in the first policy meeting of the U.S. Federal Reserve scheduled on January 28-29.
In a related development, data showed that money managers and hedge funds have reduced their bullish stance in COMEX gold contracts for the week which ended on January 21.