Gold jumped in overseas trading on Monday as the coronavirus continued to spread over the weekend, despite considerable official efforts to contain the disease. There are now reportedly 2,886 confirmed cases worldwide, although the vast majority are still in mainland China. and that number is increasing rapidly.
While the trajectory moderated somewhat today, the trend is still a disturbing one. This is likely to remain the major market-moving story for some time to come.
Global shares and commodities were under considerable pressure today, driving investors to safe-haven assets. Airline stocks were particularly hard hit amid worries that international – and even domestic – travel will be adversely affected as the virus crisis plays out.
Major U.S. companies, including Disney, McDonald’s, and Starbucks are suspending operations in China and instituting travel restrictions. A number of major international automakers have closed plants and some are withdrawing employees.
These companies will take considerable revenue hits and the employees – particularly those in China – are likely to hunker down and spend less as long as the virus continues to spread.
Lunar New Year celebrations in China typically extend until the Lantern Festival (February 15), but restricted travel, potentially lower wages and the desire to steer clear of crowds may limit holiday-related gold purchases.
While this may be counterbalancing haven buying of gold to some degree, the technical picture has improved considerably as a result of today's gains. More than 61.8% of the post-Iranian-missile-attack drop has now been retraced. This returns considerable confidence to the underlying uptrend, retargeting the 1611.47 high from January 8.
As an example of commodity pressure, one need look no further than the copper chart. The red metal lost another 3% today and is now off more than 10% from the 9-month high set 2-weeks ago at 2.8840. Next support 2.5661.
Spot Copper Daily Chart
Silver displayed more of a safe-haven shine in early trading today, also setting 2-week highs. However, the white metal was not able to sustain those gains amid rising concerns about industrial demand.
The PGMs were under pressure today for the same reason. The one exception being rhodium, which was fixed at 9985 (JM) for a fourth straight session, just shy of the all-time high fix at 10,100.
As I said, the coronavirus will remain the lead story, but the Fed begins their 2-day FOMC meeting tomorrow. Steady policy is expected, but as always, analysts will try and read between the lines in the policy statement for any clues about potentially easier policy down the road.
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