New heights seen for gold as coronavirus continues to spread globally

Gold, as a safe-haven asset, has rallied 7% from the uncertainty caused by the Covid-19 virus

by SHAZNI ONG/ pic by BLOOMBERG

GOLD prices are expected to continue trending upwards as investors keep rolling the dice following risks incurred from Covid-19, which has spread into new territories and disrupted economies worldwide.

Gold, as a safe-haven asset, has rallied 7% from the uncertainty caused by the Covid-19 virus. In 2019, it posted stellar returns of 19% due to the trade tensions between the US and China.

“As the extent of the virus has not been fully quantified and its economic effects are now only surfacing with companies guiding lower earnings, there is more upside for gold,” StashAway Malaysia Sdn Bhd country manager Wong Wai Ken told The Malaysian Reserve (TMR) recently.

Spot gold rates rose to US$1,602 (RM6,744) per troy oz at press time yesterday, correcting from last Friday’s slump as fresh coronavirus fears sent investors scurrying for shelter within the confines of safe havens.

If the uncertainty abates, gold will experience a pullback, yet there are always other risk factors that support the price of gold, Wong said.

Risks include fears of a global economic slump akin to that of 2018 when recession fears were high, as well as trade tensions, which were the main concern of 2019.

“We have constructed our portfolios to contain 8% to 15% in gold, and those portfolios are well-positioned to weather the corrections we are seeing in the equity markets. Every portfolio should contain gold to protect portfolios on the downside,” Wong added.

Similarly, Howie Lee, an economist at Oversea-Chinese Banking Corp Ltd, believes there is room for gold prices to climb further, given the global economy started 2020 on fragile footing after last year’s escalation of US-China trade tensions.

“But it remains to be seen if a new record high may be reached. Back in 2011, multiple quantitative easing programmes and fears of runaway inflation in the US sparked gold’s climb. Those factors are missing in 2020 and may prove pivotal in gold’s attempt to record a new high.

“The coronavirus episode is also more transient compared to the structural concerns faced in 2011, and gold prices may likely fade once the fears blow over,” Lee told TMR.

AxiTrader Ltd chief Asia market strategist Stephen Innes said the yellow metal is “caught in a policy tango”, being tugged to and fro between the monetary policy deluge and frothy risk-on sentiment.

“But it’s hard to ignore the bullish fundamentals, which suggest gold’s uptrend will resume before long, but it’s not the easiest of trades to time as last week’s wicked decline may have a lasting negative impact on investors,” he wrote in a note yesterday.

These days, gold is being driven as much by sentiment as it is by fundamentals, he added.

Sentiment has been dented not from the intensity of the sell-off, but rather the breadth of the sell-off relative to the fundamental drivers, most notably risk-free yields, which plummeted, he added.

“Falling US Treasury yields usually is a hugely bullish signal for gold. While at this stage, the US$1,566 level will hold as longer-term buyers on dip have remained consistent so far, the US$1,560- US$1565/oz level needs to be respected as an aggressive sell-through could trigger another wave of intense liquidation as exchange-traded fund positions remain thick with the bulk of the recent purchases well underwater.”