In early Asian trading on Wednesday, the dollar index hovered around the 98 marks after overnight gains, while spot gold was trading at around $1555 an ounce after a heavy sell-off that briefly broke below $1550. Analysts noted that while the pneumonia outbreak remained severe, a sharp rebound in equity markets as the latest move by the people’s bank of China calmed investor’s nerves had hit safe-haven buying of gold, while a strong rise in the US dollar also weighed on gold prices. Earlier on Wednesday, the national health and fitness commission reported a total of 24,324 confirmed cases of the new type of pneumonia, with 490 deaths, although the number of new suspected cases fell for a second straight day.
Speaking at a news conference in Geneva on Tuesday, the head of the world health organization’s communicable disease hazard and prevention division, jean Briand, said pneumonia from the new coronavirus was not currently a “global epidemic”.
He pointed out that the Chinese government has taken strong measures to stop the spread of the virus, the most important thing at this stage is “early detection, early isolation.”
At this stage, the virus is spread mainly through droplets and close contact with infected people, according to who research, who has not yet found drugs to fight the virus.
Why the sell-off?
Gold sold off sharply Tuesday as the dollar strengthened and stocks rose. China’s move to minimize the economic impact of the coronavirus outbreak has spurred investor appetite for risk.
Wall Street rallied strongly on the back of a global recovery as the latest intervention by China’s central bank calmed investor’s nerves. China’s central bank may cut key lending rates and bank reserve requirements in the coming weeks to support economic growth, according to media reports.
Stocks built on solid gains in the previous session as the market recovered from a sharp sell-off triggered by concerns about the coronavirus.
The dow closed up 407.82 points, or 1.4%, at 28,807.63. The s&p 500 closed up 1.5 percent at 3,297.59. The NASDAQ composite index closed 2.1 percent higher at 9467.97, a record high. The tech-heavy benchmark became the first major index to completely shrug off coronavirus-related concerns.
In addition, the dollar strengthened overnight, again above the 98 marks, making gold more expensive for buyers holding other currencies.
Strong U.S. data on Monday helped the dollar rebound sharply. The U.S. ISM manufacturing index rose to 50.9 in January, its highest level in six months and well above expectations of 48.4 and 47.2.
Factory orders were also strong on Tuesday. The data showed U.S. factory orders rose 1.8 percent in December from a month earlier and were expected to rise 1.2 percent, revised from a 0.7 percent decline.
On Tuesday, the dollar continued to rise intraday and climbed back above the 98 levels, hitting a new high of 98.01, its highest since Jan. 30.
International spot gold broke through the $1,570, $1,560 and $1,550 levels overnight to trade as low as $1,548.79 an ounce before recovering slightly from lows to close down $24.01, or 1.55 percent, at $1,552.48 an ounce.
COMEX gold for April delivery ended down $26.9, or 1.7 percent, at $1,555.50 an ounce.
Investors in financial markets grew more optimistic on Tuesday about the potential impact of the coronavirus on the economy, foreign exchange news site Daiulyfx wrote. Stock markets rebounded strongly, especially in China, which had fallen sharply in the previous session.
Although the coronavirus is undeniably infectious, it has proved to be significantly less deadly than other diseases, such as severe acute respiratory syndrome (SARS), which roiled markets in 2003.
Hopes that this will continue to seem to be supporting growth-related assets quite broadly. In any case, the people’s Bank of China has pledged to provide additional liquidity to offset the worst of the economic impact of the outbreak, an action that normally thrills markets.
JP Morgan notes that from a valuation perspective, gold’s nearly $130 rally in early January has largely been retained, so some recent pullback is normal.