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10 Feb 2020

Gold: Positive above $1,570 as China’s coronavirus heavies risk-tone

  • Gold prices register four-day winning streak.
  • Despite a modestly weak increase in case numbers, Hubei data disappoints.
  • Coronavirus updates, China data will offer short-term directions.

Gold prices remain on the front foot around $1,573 during Monday’s Asian session. In doing so, the yellow metal rises for the fourth consecutive day while also challenging the highest levels since last Tuesday. China’s coronavirus has been the key risk driver off-late. Even so, the broad US dollar rally questions the bullion buyers.

All eyes on Coronavirus…

Be it policymakers from RBA and Japan or the Fed’s semi-annual report, not to forget global producers, everyone now expects China’s epidemic to have a serious negative impact on the macros.

The latest numbers from China suggest the death toll crossed 900 mark whereas the numbers of people infected rallied beyond 40,000 mark. During the late-last week, the contagion crossed SARS that threatened trade sentiment in 2002/03 by crossing 774 mark.

Even if the latest pattern of numbers has been showing exhaustion, cases from Hubei, the epicenter of the deadly disease, continues to climb. “The capital city of the (Hubei) province (Wuhan) reported 14,982 cases as of Sunday, with the death rate hitting 4.06 percent,” says China’s Global Times.

While portraying the risk-off, the US 10-year treasury yields extend Friday’s losses to 1.56% whereas the S&P 500 Futures also drop 0.30% to 3,315 by the press time.

US dollar gains cap the rally…

While overall risk aversion should ideally fuel the precious metals, the US dollar’s inverse correlation with the commodities caps the upside. The US dollar index (DXY) rose to the strongest since October 11 on Friday after the US January month employment data continue portraying a strong picture of the world’s largest economy.

Looking forward, China’s January month Consumer Price Index (CPI) and Producer Price Index (PPI) will be gaining immediate market attention while the updates concerning coronavirus will be the key to watch. Although China’s Lunar New Year holidays might dilute inflation numbers, traders will be more interested in observing the contagion’s impact on the Chinese price pressure.

Technical Analysis

Sustained trading beyond 10-day SMA, near $1,570 now, pushes the yellow metal towards the monthly resistance line, currently at $1,589.

 

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