Gold in uncharted territory, rally to continue amid mounting coronavirus concerns

Jigar Trivedi

Although it was a holiday shortened week, MCX gold hit an all time high (April Contract: Rs 42,790 per 10 gram) in the week gone by since haven demand pushed Comex gold above $1,600 per troy ounce comfortably. Comex gold touched the highest level since February 2013.

Safe haven demand also pushed the dollar to the highest point since May 2017 but that has a little impact on the gold's move.

The coronavirus has killed more than 2,300 people and more than 76,000 in China alone. Sudden surge in new cases in North Korea has created panic in the Asian region.

The WHO has warned the window of opportunity to stem the deadly coronavirus epidemic was "narrowing" amid concern about a surge in cases with no clear link to China, including in a range of countries in the Middle East.

Manufacturing in New York accelerated in February to the highest level since May as orders and shipments jumped. The Federal Reserve Bank of New York's general business conditions index advanced to 12.9 from January's 4.8.

Minutes of the January 28-29 FOMC meeting showed that several officials might support a mild overshoot of the 2 percent inflation target, indicating they see little need to pre-empt rising prices. What's more, new shocks such as the coronavirus are more likely to keep prices subdued as global demand weakens. Federal Reserve officials indicated they could leave interest rates unchanged for many more months amid concerns about a persistent undershoot of their inflation goal, potential room to further boost employment and risks stemming from the coronavirus and trade.

The IHS Markit purchasing managers' index measuring composite output at factories and service providers fell by 3.7 points to 49.6, the lowest level since October 2013, when the US government shut down. The SPDR Gold ETF has increased to 934 tonnes from 924 tonnes as on last Friday. More importantly, holdings in the gold-backed all ETF combined has reached an all time high at 84.2 m ounce.

MCX gold has reached an uncharted territory since it is hitting all-time highs every day for last two days. Investors may continue to rush to the safety of gold amid a selloff in US stocks on mounting concerns the coronavirus outbreak will derail global growth. In a sign that the virus is starting to dent the world's largest economy, business activity in the US shrank in February for the first time since 2013 with the pandemic disrupting supply chains. This fuelled speculation that the Federal Reserve will ease monetary policy before year-end.

Gold is in the midst of its perfect storm. Prices of bullion in Euro and Australian and Canadian dollars climbed to records. Holdings in gold-backed exchange traded funds climbed for 22 straight sessions through Thursday, the longest ever run, according to Bloomberg database. This stretch of inflows certainly gives an indication about concerns around the global economy.

The outbreak has worsened outside of China, with cases in South Korea climbing past 200, while tallies for Singapore and Japan topped 85. A jump in coronavirus cases in Iran is also raising concern. Chinese authorities adjusted the number of cases for the third time this month, raising more questions over the reliability of the data. China's terrifying coronavirus outbreak is likely the unique stealth-gold-buying-boosting power. Hence the outlook is positive for next week too.

(The author is Fundamental Research Analyst - Commodities at Anand Rathi Share and Stock Brokers.)

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