Gold inches higher amid deepening virus fears

Bengaluru — Gold inched up on Thursday on worries about the economic effect of the coronavirus outbreak as the US suspended travel from virus-hit Europe, though gains were capped as traders covered margin calls after a plunge in equities.

Spot gold was up 0.1% at $1,636.37/oz by 4.15am GMT, having risen as much as 0.9% earlier in the session. US gold futures fell 0.4% to $1,636.30.

The travel ban “is a big surprise and a big shock to the market” and shows that investors are yet to see the full financial fallout from the coronavirus outbreak, said IG Markets analyst Kyle Rodda.

On the flip side, traders are selling gold to fund margin calls, providing a headwind for the metal, Rodda said. US President Donald Trump on Wednesday announced the suspension of all travel from Europe, except from the UK, to the US for 30 days, leading to a sell-off in global stock markets and the dollar.

The World Health Organisation (WHO) on Wednesday described the new coronavirus as a pandemic, adding that Italy and Iran were now on the front line of the disease — more than 126,000 people have been infected globally.

Global central banks have taken steps to shield their economies from the effect of the outbreak, with the Bank of England being the latest to cut interest rates on Wednesday. The US Federal Reserve reduced rates in an emergency move last week. The European Central Bank (ECB) is expected to follow suit when it holds its meeting later in the day, with the bank all but certain to unveil new stimulus measures, pushing policy closer to its limits to cope with the shock of the epidemic.

While markets have priced in a 10 basis-point move, rates are already at a record low of -0.5%. The ECB stimulus measures would also be supportive for gold, Phillip Futures analysts said in a note. Lower interest rate reduces the opportunity cost of holding non-yielding bullion.

Elsewhere, palladium dipped 4.7% to $2,195.68, while platinum rose 0.6% to $864.70. Silver fell 0.9% to $16.60. 

Reuters