Gold gains on economic toll of coronavirus

Bengaluru — Gold rose 1% on Wednesday, regaining some ground after Tuesday’s near 2% slide, as fears over the economic toll of the coronavirus outweighed an uptick in equity markets following an interest rate cut from the Bank of England (BoE).

The BoE on Wednesday joined other central banks in cutting rates, raising hopes for more co-ordinated monetary and fiscal stimulus. Looser monetary policy, while stimulating economic growth, tends to benefit gold, as it cuts the opportunity cost of holding nonyielding assets. Spot gold was up 1% at $1,665.09/oz by 11.09am GMT, while US gold futures gained 0.3% to $1,665.70/oz.

“Gold remains driven by developments in global financial markets, which are driven by the further development of the coronavirus [outbreak],” Commerzbank analyst Carsten Fritsch said.

The Bank of England cut rates half a percentage point, while the British government is also set to spend billions extra in its budget to minimise the economic effects of the outbreak, which has infected more than 119,000 globally. European stock markets rose for the first time in five sessions following the BoE cuts.

“All of a sudden, the BoE comes up with emergency rate cut and there’s also news from Italy on a complete lockdown, travel restrictions from several European countries and cancellation of big events — so it’s getting bigger and bigger,” Fritsch said.

The European Central Bank is expected to unveil new stimulus measures on Thursday. The US Federal Reserve slashed its benchmark rates in an emergency move last week. The White House and Congress meanwhile negotiated stimulus measures on Tuesday, although there was no immediate sign of a deal, with the resulting uncertainty also contributing to gold’s gains on Wednesday.

Further supporting bullion, US 10-year treasury yields resumed their slide back towards Monday’s record low, while the dollar also fell. Holdings in the world’s largest gold-backed exchange-traded fund (ETF), SPDR Gold Trust, held near their highest in more than three years.

“ETFs are reflecting investment,” said Soni Kumari, a commodity strategist at ANZ, adding that the lower interest rate environment and safe-haven demand were boosting inflows. Elsewhere, palladium fell 2.9% to $2,350.14/oz.

“It was quite surprising that palladium was able to withstand massive headwinds from coronavirus for such a long time, so now it feels the pain of it,” Commerzbank’s Fritsch said, adding the autocatalyst metal would be weighed down by declining car sales. Platinum was up 1.6% to $882.31/oz. Silver rose 1.3% to $17.08/oz.

Reuters