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Sun 9 Feb 2020 09:31 AM

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Gold prices fall as investors re-evaluate coronavirus impact on global economy

Warning signs remain a China scales back outlook for growth, writes Jameel Ahmad, global head of currency strategy and market research at FXTM

Gold prices fall as investors re-evaluate coronavirus impact on global economy

Jameel Ahmad, global head of currency strategy and market research at FXTM

Risk appetite has made a recovery, encouraging investors to take some profit from the table on safe-haven positions in gold and the Japanese Yen.

At the time of writing, gold prices have declined from two-week highs marginally above $1,590 to just below $1,550 on both hopes that a cure to the coronavirus from China will be eventually sourced, and an assessment that losses including WTI Oil losing $10 over the past few weeks as well as China stock markets (Shanghai Composite and CSI 300 Index) suffering declines near 10 percent on the return to trading from the Chinese new year holiday, has been an exaggerated reaction.

Still, it doesn’t appear that market sentiment is out of the woods yet.

There are concerning signals coming out in regards to both corporations and economies scaling back their outlooks for growth.

It is rumored that Chinese authorities might need to downgrade economic growth expectations for the first quarter of 2020 to an annualised 5 percent, which if true, would not only be a drastic change to the approximate 6 percent growth seen in the China economy recently but would also be the lowest economic growth seen in China since the early 1990s.

What we do know and have seen in recent days is that major corporations are warning over what impact the virus could have. For example, Tesla has temporarily closed its stores in China and a Tesla VP in the country, Tao Lin, reportedly announced in a Weibo post that cars initially scheduled for delivery to customers in China early February would be delayed due to the spread of the virus.

This news is seen as a leading reason behind Tesla shares declining a whopping 17 percent on February 5.

Elsewhere it is suggested that Apple will experience a decline in 5-10 percent of IPhone shipments during the first quarter of 2020 than what was initially projected.  

There is clearly still a great deal of unknown surrounding the coronavirus.

Some point out that the fatality rate to the virus is only at 2 percent, but at the same time announcements also show that the spread of the virus within one month has already surpassed what was encountered after six months of the 2003 SARs epidemic.

Investors should remain alerted as the virus risk will continue to remain as a trending topic to monitor for some time to come yet.   

Jameel Ahmad, global head of currency strategy and market research at FXTM