Gold strengthens as virus lifts hope for rate cut

Bengaluru — Gold rose more than 1% on Monday, recouping losses from a steep slide in the previous session, amid the fast-spreading coronavirus and hopes for a rate cut by the US Fed.

Spot gold gained 0.9% to $1,599.15 per ounce as of 6.01am, having risen more than 1% earlier in the session. US gold futures rose 2.2% to $1,601.20. Gold plunged more than 4.5% on Friday, with precious metals joining a broader market sell-off as investors liquidated positions to meet margin calls in other assets.

“On Friday, the US Federal Reserve board hinted they’re going to be dropping interest rates and that’s a great thing for gold right off the bat,” said Stephen Innes, chief market strategist at financial services firm AxiCorp.

Fed chair Jerome Powell said that while the US economy remains strong, the coronavirus “posed an evolving risk” and the central bank stands ready to take action if needed. Lower interest rates reduce the opportunity cost of holding non-yielding bullion.

The Fed fund futures showed that traders expect a 75 basis point rate cut by the US central bank in its March monetary policy meeting.

“The dollar is weaker, the euro strengthened, and this [suggests] gold will go up,” Innes said, adding the negative correlation between the US currency and the yellow metal has materialised again since the dollar’s safe-haven appeal has faded.

The expectations for a rate cut also supported other safe havens, with the benchmark US 10-year Treasury yields falling to a record low and the Japanese yen rising to its highest since October.

World stocks fell further as investors were rattled as weekend data from China raised fears of a global recession. Factory activity in China contracted at the fastest pace yet in February, even worse than during the global financial crisis, data showed on Saturday, highlighting the damage from the outbreak.

Other metals also regained some ground after Friday’s free fall, with palladium rising 1.7% to $2,638.21 per ounce after shedding as much as 13% at one point — its biggest one-day percentage decline since the 2008 financial crisis — in the last session.

Platinum gained 1.6% to $877.52, while silver rose 1.8% to $16.95, after both metals fell to their lowest in about six months in the previous session.

Reuters