Safe-haven demand pushed gold prices above $1,700 an ounce when markets opened in Asia, but the new high proved unsustainable as investors dumped risk assets in a round of panic selling.
Popular during times of turmoil, gold is seen as a safe haven. Fears of a recession continue to build as the world reacts to the growing spread of the coronavirus. Gold has seen some bumps in the past month. Analysts speculate that volatility is being caused by investors who need to mitigate losses elsewhere, and therefore are booking recent profits in bullion, Bloomberg reported.
“What we can see is the level of fear in markets is at extremes we haven’t seen since the financial crisis and there is very little financial institutions and professional investors can do or say in the short term to reassure markets. As such, if the situation escalates there is a very real possibility the gold price could continue its run over the past few months, and it could even break through the $2,000 level.”
The price of an ounce of gold hit an all-time record of $1,895 on Sept. 5, 2011, in response to worries that the U.S. would default on its debt, The Balance reported.
Gold prices are up 11 percent this year to a seven-year high and the consensus is that they will keep rising. Prices could rally toward $1,800 within weeks, according to UBS Group AG’s wealth-management unit.
The gold market appears to be the only asset in positive territory. Oil futures saw their worst selloff since 1991 with West Texas Intermediate Crude (WTI) oil prices starting the week down almost 26 percent. Gold was up 1.5 percent as S&P 500 futures were down 4.5 percent Sunday in North America, according to Kitco News.
With a horrible start to the week, market analysts are warning that the situation could continue to deteriorate.
“The containment of the coronavirus has failed,” warned Marc Chandler, managing director at Bannockburn Global Forex in a Sunday report.
“The precise economic impact may be unknown… but policymakers and investors do not need such precision,” Chandler said. “The direction of the shock is clear. The magnitude is less known, but a cursory look suggests the near-term economic impact is likely more moderate-to-severe rather than minor.”
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Bad news for markets would be good news for gold, said Michael McCarthy, chief market strategist at CMC Markets in Sydney.
Along with safe-haven demand, gold prices are also benefiting from fresh historic lows in U.S. bond yields, Kitco reported. The yield on U.S. 10-year treasuries briefly fell below 0.5 percent on Sunday evening.
The coronavirus is destroying demand in oil and natural gas markets, said Paul Robinson, managing director at CRU, in an inteview with Kitco News. He said he expects markets are still a few weeks away from full-on panic. North American markets still don’t fully understand how the virus will impact economic growth.