Gold futures on Tuesday traded lower, facing pressure as China, one of the commodity’s biggest buyers, faced a viral outbreak that could hurt buying of physical gold at a peak holiday period.
“This unfavourable development could not come at a more critical time with many people expected to travel within China before the Lunar New Year,” wrote Lukman Otunuga, senior research analyst at FXTM, in a daily research note.
“The outbreak certainly presents an economic risk to China and its close neighbours, especially if tourism, air travel and other industries are affected,” he wrote.
Gold for February delivery GCG20, -0.17% on Comex fell $9.90, or 0.6%, at $1,550.40 an ounce, while March silver SIH20, -1.23% dropped by 37.8 cents, or 2.1%, to $17.695 an ounce. U.S. markets were closed on Monday in observance of Martin King Luther Jr. Day.
Gold futures posted a climb of roughly 20 cents higher last week, following gains for each of the last three weeks, according to FactSet data. Silver fell about 0.2% for the week.
According to the Associated Press, six people have died and 291 have been infected by the virus in China, the National Health Commission said Tuesday.
A number of countries have already adopted screening measures for travelers from China, especially those arriving from Wuhan, due to concerns about a global outbreak similar to SARS, another coronavirus that spread from China to more than a dozen countries in 2002-2003.
“The world is reacting in a deflationary manner to the news of a spread of the pneumonia like virus in China,” said analysts at Zaner Metals, in a daily nonte. “The trade is justified in factoring in some slowing fears and that in turn has applied pressure to gold, silver and nearly every physical commodity.”
“Increasing the potential deflationary impact of the new virus is the fact that the Chinese New Year celebrations start this coming weekend and that usually results in roughly 300 million people traveling inside China, and reducing that dramatically would remove a tremendous annual stimulus for the Chinese economy,” they said.
Still, the Zaner Metals analysts pointed out that gold managed to touch a two-week high before reversing course and tracking lower.
Bullion may draw haven bids if the virus manifests into a genuine outbreak in Asia. Chinese health experts have confirmed that it could be transmitted between humans.
“Gold is set to remain the prime destination for safe haven buyers this week as developments in China and caution ahead of the Davos summit dent risk sentiment,” wrote Otunuga, referring to an annual gathering of business leaders in Davos, Switzerland.
Chintan Karnani, chief market analyst at Insignia Consultants, however, does not believe that the virus in China is behind the current selloff in gold.
Gold fell, in part, due to profit taking following a three-day holiday weekend in the U.S. as well as a “failed attempt to break key technical resistance of $1574,” said Karnani. “I do not see any significant fall in Chinese gold buying (during the Chinese New Year) unless the virus in China turns into an epidemic.”
Other metals also traded lower on Tuesday, with the exception of palladium, which looked to extend its move to record highs. March palladium PAH20, -0.27% added 0.4% to $2,233.70 an ounce.