Gold futures surged on Monday to their highest finish since February 2013, as the spread of COVID-19 to Italy and other parts of the globe injected a fresh bout of nervousness into the markets, lifting demand for assets perceived as havens like gold.
The precious metal is “becoming a more widely desired currency again,” Peter Spina, president and chief executive officer of GoldSeek.com, told MarketWatch. “Volumes in it is rising and gold markets around the world will be trading it increasingly more so as one of the world’s most liquid currencies.”
In the short term, gold is “going to remain extremely volatile as the uncertainties around the current global economic impact from COVID-19 keeps the fear and uncertainties in gold’s favor,” he said.
However, there is a growing price premium with the gold price due to the virus—perhaps at $50 or more, Spina said. “Should a vaccine be discovered, [though] unlikely in the near term,” there’s a possibility that the gold price “could see most of that taken out.”
Gold futures GCJ20, -1.34% advanced $27.80, or 1.7%, to settle at $1,676.60 an ounce, lifting the precious metal nearer to a psychologically significant level at $1,700 that it hasn’t breached since 2012. The metal marked its highest most-active contract settlement since February of 2013, according to FactSet data.
Overall strength in the dollar, a significant climb in gold prices, and a sharp decline in the U.S. stock market “all point to continued [economic] worries internationally” as investors also saw the International Monetary Fund lowering the economic outlook, said George Gero, managing director at RBC Wealth Management, in a daily update.
On Saturday, the IMF said China’s coronavirus epidemic will likely cut 0.1% from global economic growth and drag down China’s economic growth to 5.6% this year.
Worries about the disease’s spread has driven the yield on the benchmark 10-year Treasury note TMUBMUSD10Y, -0.12% to 1.363% following a dip to $1.3513, its lowest since July 2016. Bond prices move in the opposite direction of yields. Lower rates can drive the appeal of gold because the precious commodity doesn’t offer a coupon.
Assets considered risky were taking a beating, with the Dow Jones Industrial Average DJIA, -3.56%, the S&P 500 index SPX, -3.35% and the Nasdaq Composite Index COMP, -3.71% down sharply on Monday after Asian and European markets fell for the session.
“Risk-off has taken hold of global markets as investors are growing incredibly concerned that the market could be on the verge of a massive meltdown as we are moving well past the weak Chinese recovery scenario,” wrote Stephen Innes, chief market strategist at AxiCorp, in a Monday research report.
Italy has shut down schools, universities and museums across the country’s north as the southern European country reported its fifth death from COVID-19, the disease caused by the strain of coronavirus that reportedly originated in Wuhan, China last year, and has claimed thousands of lives globally and sickened tens of thousands, The Wall Street Journal and others reported on Monday.
The outbreak touching down in Europe comes as millions have been in lockdown in China due to the outbreak and fears that it could hurt the global economy. But since the virus was identified last year, it has rapidly spread to Japan, South Korea and other parts of the world.
The U.S. Federal Reserve is more likely to be forced to cut interest rates to respond to economic growth concerns, partly driven by the spread of the coronavirus outside of China, according to economists at a top policy conference Monday. Precious metals like gold tend to attract buyers in a low interest-rate climate.
In other metals, silver for March delivery SIH20, -2.84% gained 34.6 cents, or 1.9%, to end at $18.876 an ounce. March copper HGH20, -0.19% settled at $2.577 a pound, down 1.2%.
April platinum PLJ20, -1.37% shed 0.2% to $974.20 an ounce and March palladium PAH20, +2.63% lost 3.2% to $2,521.30 an ounce.