Gold Rises as China Virus Scare Spurs Safe-Haven Demand

As the virus reaches Western nations, investor sentiment has quickly turned to risk aversion, pushing up the price of gold and other safe havens.

As the World Health Organization (WHO) struggles to avoid labeling the coronavirus outbreak a global health emergency, investor sentiment has quickly turned to risk aversion as news pour in that the virus has emerged in several Western countries. The deadly flu virus, which appears to have originated in the Chinese city of Wuhan, has since brought the Asian nation into lockdown, canceling its Lunar New Year events and hampering travel during what is normally the busiest time of the year.

After France confirmed two cases of its own, the U.S.’ Centers for Disease Control revealed that a second person had returned from China showing signs of infection, with 63 other individuals being placed under close surveillance. Although the WHO wanted to avoid impacting the markets, gold has shot up to recent highs as investors considered the possible ramifications that the virus could have.

“Mounting concerns about the virus ahead of the weekend are driving accumulation of gold. … Clearly, the headlines will get worse before they get better,” noted Tai Wong, head of base and precious metals derivatives trading at BMO.

The outbreak has since killed dozens across Asia, with a few thousand contaminations reported worldwide. Dr. Nancy Messonnier, director of the National Center for Immunization and Respiratory Diseases, said that contaminations in the U.S. have been kept in check, while noting that the time of the year and its accompanying flu season makes detection of the lethal virus more difficult.

As Wong pointed out, the issue is likely to keep driving gold prices up in the near term and play a prominent role as we move closer to the Federal Reserve meeting this week. Outside of the latest development, gold has enjoyed a robust month after shooting up above $1,600 for the first time in seven years on the back of tensions with the Middle East.

While gold has since pulled back, the metal remains above last year’s highs as it holds onto key support with several other drivers sending wind to its sails. These include accommodative central bank policies, such as the European Central Bank’s dip into negative territory for interest rates, as well as the likelihood of more easing from the Fed. Besides rate cuts, gold has also benefitted from the flimsiness in other havens. Along with several global bonds turning negative, yields for the U.S. 10-year Treasury fell to a two-week low, helping divert safe-haven demand towards the gold market.