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February
05
2020

Gold, only safe haven in town amid coronavirus outbreak,
expected hit record high this year
Enoch Yiu

• Gold prices have remained elevated in the post-Lunar New Year period, which is new, Standard Chartered says
  
  
• Precious metal might even rise to more than US$1,800.2 per ounce, getting closer to historic high of US$1,889.70, Hong Kong brokerage says

Gold rose 4.8 per cent in January to hit a seven-year high on Friday, as investors sought out the safe-haven asset amid the coronavirus outbreak, a trend that will support its price this year, analysts said. Even after a retreat this week, it was up 4 per cent year to date on Wednesday.

Internationally, gold traded at US$1,557.80 an ounce on Wednesday, having hit US$1,589.8 on Friday, its strongest level since April 2013. Its year-to-date rise follows an 18 per cent rally in 2019 as a whole.

In Hong Kong, the precious metal rose on the first trading day of the Year of the Rat to its best lunar year debut since 2016. The local gold market closed at HK$14,535 (US$1,871) a tael, or 37.9 grams, an increase of 0.9 per cent over its close on Friday, January 24, the last trading day of the Year of the Pig, the previous lunar year according to the Chinese calendar. On Wednesday, it traded at HK$14,420 per tael.

Demand for gold tends to drop after the Lunar New Year holiday as seasonal demand fades, but this year, a different picture is emerging, Suki Cooper, precious metals analyst at Standard Chartered bank’s New York branch, said in a recent research report.

“Buying tends to ease once the Lunar New Year holiday commences. However, this year prices have remained elevated, with gold benefiting alongside other safe-haven assets amid coronavirus fears,” she said. “While we do not believe overall investor positioning is overcrowded in gold … We continue to see sustained upside risk to gold prices in the second half of 2020.”

The Shanghai Composite Index kicked off the Year of the Rat by falling 8.5 per cent at the open on Monday, before closing 7.7 per cent lower for its biggest single-day decline since August 2015. The markets in mainland China were shut for an additional two days because of the outbreak. In Hong Kong, where the Hang Seng Index kicked off the new lunar year on Wednesday, the benchmark fell 3 per cent for its worst open since the Year of the Monkey in 2016.

Weak stock markets boost gold prices. Cooper said the precious metal stayed firm during the 2003 Sars (severe acute respiratory syndrome) outbreak as well.

“Other structurally positive factors drove gold demand and price momentum [as well] then, such as the slowing of the global hedge programme, the central bank gold agreement providing market stability, the launch of the first physically backed gold ETP and heightened geopolitical risks spurring safe-haven buying,” she said.

Bruce Yam, forex strategist at Hong Kong broker Everbright Sun Hung Kai, too said gold prices would rise this year, and forecast an increase to US$1,624 per ounce in the near term. He added that the precious metal might even rise to more than US$1,800.2 per ounce, getting closer to its historic high of US$1,889.70 per ounce.

“While people are interested in buying masks more than any other investment, investors are set to buy more gold this year,” Yam said.

He said the outbreak had pushed governments in China and other countries to introduce measures to boost weak economies, which might result in a rise in inflation. “Whenever inflation rises, the gold price will go up, as the precious metal is the most ideal investment to hedge against the risks of inflation,” Yam said.

Jerry Jrearz, international business director of Hong Kong-based brokerage First Asia Merchants Bullion, said China was also a major supplier of gold and the outbreak had led to delays in mining operations.

“The decrease in supply will led to the gold prices worldwide going further up this year, to at least US$1,700 per ounce,” he said.

Enoch joined the Post as a business reporter in 1996. Before that, she worked at a Chinese daily newspaper for four years. She is author of two books: 'They Mean Business: 50 exclusive interviews with Hong Kong top executives' and 'Serving with Passion: stories of established catering brands in Hong Kong'.

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