Gold falls slightly but is held firm by spread of new China virus

Bengaluru — Gold fell on Tuesday, easing off a two-week peak, as the dollar steadied near a one-month high, although fears of the economic fallout from the coronavirus in China dulled risk sentiment and kept prices supported above the $1,500 an ounce level.

Spot gold was down 0.4% to $1,555.59 an ounce at 10.42am GMT, after hitting its highest since January 8 at $1,568.35 earlier in the session. US gold futures fell 0.3% to $1,555.70 an ounce.

“The virus is like a double-edged sword,” said Quantitative Commodity Research consultant Peter Fertig. “In one way it is boosting gold, but in the longer term, if the virus kills thousands, that will impact gold negatively on the physical side,” Fertig said, adding a stronger dollar is weighing on gold prices at the moment.

The dollar held near the highest level in nearly a month, making gold expensive for holders of other currencies.

A coronavirus outbreak that began in the central Chinese city of Wuhan sent shivers through financial markets, as the World Health Organisation (WHO) called a meeting for Wednesday to consider declaring an international health emergency.

Bullion is considered a safe asset during times of financial and geopolitical uncertainty.

“Chinese New Year holidays are going to worsen the situation as people are bound to travel in China. The fear of outbreak is going to drive up demand for gold for a couple more days,” said Margaret Yang Yan, a market analyst at CMC Markets.

China will start celebrating the Lunar New Year this weekend.

“However, it is hard to see gold progressing above $1,600 an ounce until the health emergency in China escalates sharply and becomes a regional problem,” Jeffrey Halley, senior market analyst, Oanda, said in a note.

On the physical side, China’s gold consumption fell for the first time in three years in 2019, figures released by the country’s gold association showed on Tuesday, as high prices and an economic slowdown hit buying in the world’s biggest gold market.

Markets also kept a tab on developments in the World Economic Forum (WEF) in Davos and awaited the European Central Bank’s first policy meeting of the year this week.

Palladium fell 0.9% to $2,476.26 an ounce. The automotive catalyst metal hit a record high of $2,582.19 in the previous session. Silver fell 0.4% to $17.99, while platinum edged 0.8% lower to $1,007.73 an ounce.