Gold May Hit $2,000 As China Pandemic Fears Weaken Equities, Dollar and Oil

Safe-haven gold continued to gain globally as equities and oil came under pressure from global pandemic fears following the rise in coronavirus infections in China. The yellow metal, trading at $1,600 an ounce, the highest since 2013, led the rally of precious metals. Dow was down more than 450 points or minus 1.57% by 5 pm (EST) Monday.

Oil futures slipped Tuesday, extending losses into a sixth session over the China virus fears. Brent crude was down 15 cents, or 0.3%, to $59.17 at around 0114 GMT, a Reuters report said.

Market sources feel gold could top $2,000 soon, after having already gained nearly 20% last year. Gold hit an all-time high of $1,900 in 2011 amid the European debt crisis.

Business Fear & Greed Index

While equities in general tumbled stocks related to gold and gold miners did well feeding on investor fear of further market weakness. Miner Newmont (NEM) was one of the few S&P 500 stocks trading higher Monday. The VanEck Vectors Gold Miners ETF (GDX) is up nearly 40% in the past year.

The CNN Business Fear & Greed Index, which looks at seven measures of market sentiment, has plunged in the past week and is close to levels of fear. The index was in Extreme Greed territory just a week ago.

“There are a lot of things that could go wrong for the stock market and the economic impact of a China slowdown from the coronavirus could be felt globally,” David Beahm, president, and CEO of Blanchard & Company told CNN.

Even before the coronavirus outbreak in China’s industrial city of Wuhan, gold was doing well because of the low-interest rates. Three interest rate cuts by the Federal Reserve in last year helped to weaken the U.S. dollar and buffed up gold investments.

Precious metals do well

Along with gold, the other precious metals like silver, platinum, and palladium have soared because of the dollar weakness induced by low-interest rates. Experts think there is more upside left in precious metals, considering a likely fall in global trade from the Chinese slowdown. “A 5% to 10% allocation in gold and gold stocks makes sense,” says Ralph Aldis, a portfolio manager with US Global Investors. “This is the nascent start of a gold rally.”

Aldis said gold should continue to climb not just because the nervous average investors are turning to safe haven. Even big global central banks are starting to hoard gold, according to market reports.

The World Gold Council reported that central bank gold purchases rose 12% in the first three quarters of 2019 from the same period in 2018. Central banks added 547.5 metric tons of gold on a net basis.

On Tuesday, oil futures slipped, extending losses into a sixth session as the spread of a new virus in China and other countries raised concerns about a hit to economic growth and slower oil demand, Reuters said.

Crude slips on travel worries

Brent crude was down 15 cents, or 0.3%, to $59.17 at around 0114 GMT, after touching a three-month low on Monday at $58.50.

U.S. West Texas Intermediate was down 12 cents, or 0.2%, at $53.02, after slipping to its lowest since early October in the previous session at $52.13.

The U.S. warned against travel to China and other countries put out advisories as the death toll from the spreading coronavirus outbreak rose to 100 people and left millions of Chinese stranded during the biggest holiday of the year.

Oil investors are concerned travel advisories, other restrictions and any fall-off in economic growth in the world’s second-biggest economy and elsewhere will dampen demand for crude and its products, amid plentiful supply.

“Jet fuel demand has already been negatively impacted given our real-time observation of Chinese flight activity,” RBC Capital Markets said in a note.

U.S. crude stockpiles likely rose last week, according to a Reuters poll, underlining the supply-side concerns.