GoldPrice.

Happy Friday, traders. Welcome to our weekly recap of the global headlines and macroeconomic data that mattered the most for precious metals and related markets over the last five trading days. I’ll cut back on the preamble this week, as I’m getting this post up a bit later than usual so that I could keep an eye out for any last-minute developments around this week’s biggest market driver, the concern around a spreading coronavirus in Asia and elsewhere.

To close out the week, gold prices are trading solidly higher for the week above $1570/oz. Silver, meanwhile, as retaken a position above $18/oz and investors have stepped into the safety of government paper, driving the yield on the benchmark 10-year Treasury to below 1.70%.

So, what kind of week has it been?

Monday’s Holiday Trading for Gold was Light but Bullish at $1560/oz

With US markets observing a holiday on Monday, the trading session was calm, quiet, and lightly attended. Gold traded the day flat along the $1560/oz level that it had regained in overnight trading, while silver prices held onto their 18-handle.

As far as Monday’s news flow, it was very light as well with only two stories worth noting—only one of which has persisted through this week. First, from the platform the annual World Economic Forum in Davos, the IMF issued a forecast for +3.3% global growth for 2020. The number is an optimistic increase from the IMF’s +2.9% for 2019 but is also down from what their growth outlook had been when it was last updated in October. Secondly, through Monday’s session we saw the steady increase in headlines around a new coronavirus spreading in China and picking up a body count.

As you know by now, the SARS-related virus is the story that has drawn market focus throughout the week, and we saw the first impression of that on Monday evening as the kick-off of open trading in Asia was marked by a risk-off surge in safe havens that drove gold prices as high as $1566/oz while many Asian equity markets—particularly China’s in what would be the start of an ugly pre-holiday week—weakened considerably.

As Concern Around a New Virus in China Grew, Gold Prices Softened on Demand Outlook

While the slide in equity markets and a generally keener sense of risk aversion transferred into the European trading session, we also saw gold prices weaken to below $1560 during the same period. While we know that the yellow metal typically makes gains along with the other stalwart safe haven assets at times that major global equities are pointing down, the timing of this week’s respiratory outbreak in China seems to have been particularly damaging for gold. The week-long Lunar New Year holiday—across Asia, but particularly in China—which began today is traditionally a major week for travel and also for consumer spending. Both of those inputs look to be severely hampered this year by fear about the virus’ spread as well as the restrictive actions that the Chinese government has taken to contain it. With luxury goods makers appearing to be the hardest hit stocks in this week’s downturn, it’s reasonable to assume that while the traditional drivers of risk-off gold buying were in play there yellow metal’s value has been suppressed by a pessimistic outlook for gold demand over a holiday period that usually drives a great deal of it.

Still, gold has had those tailwinds all week as well; it was at the cash open for US equities on Tuesday that we saw the yellow metal demonstrate its strong level of support at $1550/oz for the week. With the Dow and S&P weakened gold prices tracked back above $1555, and concerns about a global spread of the virus overtook simple worries about demand as the US media reported the first confirmed case of the coronavirus in America.

U.S. stocks slump after a CNN report that the deadly virus that originated in China migrated to the U.S. https://t.co/IKWX83MdsO pic.twitter.com/yYrD0L8LTi

— Bloomberg (@business) January 21, 2020

US stocks sold off once again to end Tuesday’s book of business in the red and gold prices closed the afternoon just below $1560/oz having made an unsuccessful attempt to break through resistance at the round number.

Equity Markets Saw a Briefly Relief Rally on Wednesday, but Gold Prices Held Support

As the Asian markets logged on for Wednesday, investors were calmed by the containment plans that the Chinese government had begun laying out, and a relief rally began taking hold across global equity markets. Risk aversion began to mellow, and gold prices slid back as low as $1550/oz where they once again found solid technical support.

The start of the European trading session saw buyers step back into supported gold. The move was likely driven to some extent by the safe haven looking “cheap” at $1550 this week, but also some market pessimism in Europe: there was some serious concern over disappointing earnings reported in the automotive sector, while instability seems to be coming back to the fore of Italy’s government. The hand wringing would see gold prices rise higher again, and ultimately make an attempt to retake $1560 in the early New York hours before correcting back to $1556/oz.

Wednesday in the US was very calm. In that environment, gold prices made the occasional foray higher (one of which was dampened by another big upside surprise in US housing market data,) but ultimately traded tied to either side of $1556 through the thick of trading in the morning and into the afternoon. Towards the end of the market day, while US stocks had been participating happily in the global equity rebound, the steady pace of reporting on the Asian coronavirus came to weigh on risk appetite. The persistent concerns of contagion moved again to the front, and the re-open of global trading on Wednesday evening saw gold prices burst higher and trade through resistance above $1560.

Depending Concerns Around China Lowered the Outlook for Gold Demand, Gold Prices

“Briefly,” because gold’s temporary gains sold off sharply and immediately at the start of equity market trading in Asia, mirroring the drop in Chinese stocks as investors, concerned about market instability and “contagion” in more than once sense, liquidated positions ahead to the Lunar New Year holiday week which began Friday. Another round of Chinese markets selling lower while gold prices also slide served to confirm the view that the muting of a major spending week for Chinese consumers has weighed on the outlook for gold demand. However, as if to confirm the opposing force for gold prices this week (the general sense of market unease around the coronavirus’ spread,) the line up support for the yellow metal was demonstrated at $1555/oz this time as sellers struggled to push prices below that level.

Again risk aversion moved to the fore of the market, and the cash open for US markets on Thursday morning saw another surge in gold prices. This time, gold burst back above $1560/oz and (so far) hasn’t really looked back. With some temporary shorts getting squeezed on the shift higher, spot prices for gold got a bit over-extended and peaked for the day just below $1570 before settling a few dollars lower for the afternoon hours.

Risk-Aversion Overpowered Concerns Over Chinese Demand, Sent Gold Prices Above $1570

The story didn’t really change during the Thursday-to-Friday overnight, and through the Asian and European trading sessions (Asian markets were particularly light and will be to some degree the same next week as we’ve begun the Lunar New Year period.) Tension around the spread of the Chinese coronavirus, and the potential economic damage as a by-product of government efforts to contain it. Without any new data or headlines (as was largely expected, the impeachment trial of Donald Trump has been effectively a non-event for markets so far,) gold as a risk-correlated asset looked aimed to slide into the weekend still inside—though near the ceiling of—the tight weekly range it had traded. Shortly after the start of US equity trading however, gold and other safe havens got a lift from two risk-off catalysts.

The run higher in gold prices was kicked-off by the release of Markit’s US PMI data which, while showing a gain for the service sector also registered an unexpected decline in manufacturing. With US equities paring early gains on the report, stocks were roiled further by the announcement of two more confirmed cases of the coronavirus respiratory illness inside the US. The surge in risk-aversion has been enough to the S&P Index to its deepest daily drop since October of last year while gold spot prices have been trading at or above $1570/oz since mid-morning.

Gold prices have sold off from their highpoint in the mid-1570s this afternoon, mostly due to the usual bout of profit-taking from short-term holders but also, I think, because of an undercurrent of calm belief that the spread of the Chinese coronavirus that has dominated the headlines this week will not get worse over the weekend. Should that prove to be the case, we might see a more considerable rise in risk appetite once markets reopen next week.

Next Up

Speaking of next week, we will obviously start things off our focus on developments in China; but there will also be the first FOMC decision of 2020 for us to cover. Following that, we’ll get our first look at US GDP for Q4, and an updated brief on the Fed’s PCE price inflation measurements.

For now, traders, get out there and enjoy your weekend! I’ll see you all back here on Monday for a review of any off-market events over the weekend, and a preview of the trading week ahead.