Gold

The yellow metal fell sharply on Friday as the rapid spread of the coronavirus triggered a panic selloff in equity markets which followed through into the commodities sector. Spot gold crashed over 3 percent intraday, closing at $1,585 per ounce.

With more and more countries reporting their first cases of the virus, fears of a pandemic are beginning to gain traction. The World Health Organisation has confirmed the risks are there, warning a worldwide spread of the coronavirus is probable. Under these circumstances, investors tend to prefer holding liquid assets such as cash, prompting the market selloffs.

Analysts are suggesting that the drop-in gold prices may also be attributed to a rise in margin calls due to the crash in the stock market. It is likely that a significant number of investors are having to meet their margin requirements, forcing them to offload their bullion reserves.

Should the selloff in gold be in fact largely caused by the covering of margin calls, we may be looking at a swift recovery in the precious metal. The bullion still maintains its attractiveness as a hedge for downturns and gold as consumer goodwill continues to be sought after. Although as an industrial commodity, we will likely see a drop in demand for the material.

From a technical perspective, gold managed to maintain its overall uptrend on the daily chart, signaling bulls are still in control. The current support level is around 1,575 marks. With further support to be expected at 1,553. On the upside, gold bulls will try to regain momentum above the 1,600 psychological hurdles. Traders will be looking at the price action around the 61.8 percent Fibonacci retracement level for a sign of strength in the recovery.

(Chart Source: Tradingview 01.03.2020)

Looking ahead, should the coronavirus continue to rattle the markets, investors will remain panicky and may hold off on any investment in favor of keeping their cash on hand. Central banks around the world will potentially look into further monetary stimulus, as the US Federal Reserve contemplates cutting interest rates in the near term.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.