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."
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.
