Gold edged higher on February 26 after a sharp drop in the previous session, as investors sought safe haven assets following a warning from the United States over the potential domestic spread of the coronavirus.
Spot gold was up 0.3 percent at $1,639.74 per ounce, as of 0340 GMT, having slumped as much as 1.9 percent in the previous session. On February 24, prices touched $1,688.66, their highest in more than seven years.
US gold futures eased 0.5 percent to $1,641.80.
"People are worried that the virus is spreading across the globe and will become a pandemic," IG Markets analyst Kyle Rodda said.
"Perhaps, the worst case scenario to the global economy could start to materialize and that is keeping gold prices bid because everyone is concerned that the virus is leading to low yields."
Frequently Asked Questions
A vaccine works by mimicking a natural infection. A vaccine not only induces immune response to protect people from any future COVID-19 infection, but also helps quickly build herd immunity to put an end to the pandemic. Herd immunity occurs when a sufficient percentage of a population becomes immune to a disease, making the spread of disease from person to person unlikely. The good news is that SARS-CoV-2 virus has been fairly stable, which increases the viability of a vaccine.
There are broadly four types of vaccine — one, a vaccine based on the whole virus (this could be either inactivated, or an attenuated [weakened] virus vaccine); two, a non-replicating viral vector vaccine that uses a benign virus as vector that carries the antigen of SARS-CoV; three, nucleic-acid vaccines that have genetic material like DNA and RNA of antigens like spike protein given to a person, helping human cells decode genetic material and produce the vaccine; and four, protein subunit vaccine wherein the recombinant proteins of SARS-COV-2 along with an adjuvant (booster) is given as a vaccine.
Vaccine development is a long, complex process. Unlike drugs that are given to people with a diseased, vaccines are given to healthy people and also vulnerable sections such as children, pregnant women and the elderly. So rigorous tests are compulsory. History says that the fastest time it took to develop a vaccine is five years, but it usually takes double or sometimes triple that time.
The United States alerted Americans on Tuesday to begin preparing for the spread of coronavirus in the country as outbreaks in Iran, South Korea and Italy escalated. Asian shares fell as worries over the spread of the virus drove another Wall Street tumble and pushed yields on safe-haven Treasuries to record lows. The rapid spread of the virus and its impact on global economic activities increased bets for monetary policy easing by global central banks, with U.S. money market futures now fully pricing in a 0.25 percentage point cut by the end of June.
"The market is finding it difficult to look further into the medium term due to uncertainty regarding what the virus will do to the global growth. There are beliefs that central banks may cut rates sooner than later," IG Markets' Rodda added.
Lower interest rates reduce the opportunity cost of holding non-yielding bullion. The effects of the outbreak are likely to reverberate beyond China as most major economies in the region are expected to either slow down significantly, halt or shrink in the current quarter, Reuters polls found.
Reflecting appetite for gold, holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.7 percent to 940.09 tonnes on February 25. Among other precious metals, palladium gained 0.3 percent to $2,706.87 per ounce, while platinum rose 0.4 percent to $929.54, having touched its lowest in two months on February 25. Silver rose 0.3 percent to $18.03 an ounce, having fallen as much as 4.1 percent in the previous session.