Fears of a second-wave of coronavirus infections in Wuhan, China created an air of risk-off sentiment in the market Tuesday, sending gold prices soaring above $1,700 an ounce. Retaking this key level is a strong signal that investors remain bullish on bullion at a precarious time in the global fight against Covid-19.
The price of gold rose $18.70, or 1.1%, to $1,716.70 a troy ounce Tuesday, partially offsetting a sharp two-day slump. The yellow metal is currently trading at $1,713.70 a troy ounce on the Comex division of the New York Mercantile Exchange.
The yellow metal has returned 12.5% year-to-date but is off roughly 4% from its March peak of $1,788.80 an ounce.
Bullion’s recovery is aided by a sharp drop in the U.S. dollar. The currency, which became the preferred haven during the spring liquidity crisis, declined half a percent on Tuesday. The U.S. dollar index (DXY) is currently valued at 99.85.
Markets are on high alert after the Chinese city of Wuhan reported new cases of coronavirus more than a month after its lockdown was lifted.
The original epicenter of the fatal disease has reported six new cases of local transmission. More than 541 new cases were reported across the mainland, according to the South China Morning Post (SCMP).
A Wuhan government official has been fired for poor disease control and calls for the city’s mayor to step down have grown louder.
Mayor Zhou Xianwang said the danger of the disease wasn’t as apparent at the outset of the crisis, which partly explains the government’s poor response:
From the perspective of continued understanding of the situation, it is only at this time that everyone realises it is so dangerous… If we knew at first from the virus spread that it would be so serious, finding effective control and prevention methods of course would be good, but the problem is usually we cannot realize the severity from the outset.
The northeastern city of Shulan, not far from the Russian and North Korean borders, has emerged as one of the country’s largest clusters. Fourteen new cases were reported over the past two days.
China claims it has a firm handle on the outbreak, with only 84,000 reported cases so far. Organizations like the CIA believe China not only concealed the extent of the epidemic but also underreported their numbers.
Nevertheless, the global infection rate continues to grow at a steady pace. Data from Johns Hopkins show over 4.2 million confirmed cases, with more than a third in the United States.
Nations eager to reopen their economies risk a new public health crisis and further economic damage if the disease strikes in a second wave. The silver lining appears to be that the vast majority of infected people are asymptomatic and don’t need any treatment. If true, the actual infection rate could be significantly higher than reported so far.
Disclaimer: The author holds no investment position in gold at the time of writing.
Last modified: May 12, 2020 4:50 PM UTC