The prices of gold jumped to a two-week high on Tuesday because of an outbreak of a new strain of coronavirus in China which sparked risk aversion among investors and encouraged a sell-off in the Asian equities market. The outbreak also raised fears of an epidemic that could hinder economic growth.
U.S. gold futures jumped by 0.4% to $1,566.30 an ounce. Spot prices rose by 0.3% to $1,568.35 an ounce, its highest price since January 8.
According to CMC Markets analyst Margaret Yang Yan, the rapid spread of the coronavirus has caused panic and immediately pushed gold prices up. The situation is likely to worsen because many people will travel to China for the celebration of the Lunar New Year. She expects the demand for the yellow metal to go up in the coming days because of fear of a major outbreak.
The World Health Organization has already convened an emergency meeting to evaluate whether the situation can be considered an international health emergency.
Another positive factor for the precious metal today is the news that three Katyusha rockets were dropped in the Green Zone in Baghdad which houses foreign missions and government buildings. One of the rockets fell just 100 meters away from the U.S. embassy.
Meanwhile, the Japanese central bank has raised its economic growth forecasts and decided to maintain its monetary policy. The pressure on the bank to issue economic stimulus was relieved by the growing optimism on the global economic outlook and the government’s fiscal spending package to boost economic growth. The yen has also gained some valuation because of the coronavirus outbreak in China.
In a related development, the International Monetary Fund has reduced its forecast for global economic growth for 2020 and 2021.
The markets are monitoring developments that could affect the demand and price of the bullion. These are the first policy meeting of the European Central Bank which is scheduled this week and the World Economic Forum in Davos, Switzerland.