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James Hyerczyk

Gold futures are trading higher and in a position to change its daily trend to up after trading tentatively most of the week. Traders were a little hesitant to buy gold this week because data and comments from China were suggesting the coronavirus had reached a peak.

Who could blame them? After all, a province in China was the source of the problems and they had all the data. But the facts changed a little on Thursday to the better for gold traders.

At 11:02 GMT, April Comex gold is trading $1577.60, up $6.00 or +0.39%.

New Coronavirus Data Underpins Gold Prices

Gold picked up a bid early Thursday after China’s Hubei province, the epicenter of a coronavirus outbreak, reported a sharp jump in the number of new cases in a surprise to investors, sparking a flight into the safe-haven Japanese Yen.

This is supporting gold because it raises doubts over whether the spread of the virus has actually peaked, meaning its impact on China’s economy could continue to worsen. And this could eventually spread to its biggest trading partners, making their economies vulnerable.


Appetite for Risk Declines

Global equity markets are down on Thursday as investors trim positions in risky assets, while moving money into the safe-haven Treasurys. This is pressuring U.S. Treasury yields, which is making gold a more attractive investment.

US Economic News

Federal Reserve Chairman Jerome Powell wrapped up his semi-annual testimony before the Senate Banking Committee on Wednesday, noting the central bank should have an idea of the coronavirus’ impact on the U.S. economy ‘fairly soon.” Powell also said the Fed would use forward guidance and asset purchases to fight an economic downturn, but also suggested the central bank was running out of ammo.

Powell:  Fed Must Use Forward Guidance, Purchases in Future Downturn

“Our traditional tool, of course, is interest rates. And low rates are not really a choice anymore:  They are a fact of reality. So we will have less room to cut. That means it’s much more likely that we’ll have to turn to the tools that we used in the financial crisis when we hit the lower bound. Which is forward guidance – which says it will keep rates low – and then it’s also large-scale asset purchases of longer-term securities to drive longer-term rates down and support the economy. We will use those tools, I believe we will use them aggressively should the need arise to do so. There’s no need to do that now. But we will use those tools aggressively.

Fed Should Soon See if Coronavirus is Affecting U.S. Growth ‘Fairly Soon’

Asked by Arkansas Republican Tom Cotton to detail how the coronavirus could impact U.S. growth, Powell said.

“The real question for the Fed is:  What is the likely effect on the U.S. economy? And I think we’ll begin to see that in economic data coming up fairly soon. It’s too uncertain to even speculate about what the level of that will be, and whether it will be persistent, or whether it will lead to a material change in the outlook. But we do expect that there will be some effects. The effects should be substantial in China, important but maybe less substantial in their immediate trading partners. And we’ll be looking at the economic data.”

Daily Forecast

Short-term gold traders should take note of Fed Chair Powell’s comments on the coronavirus’ impact on U.S. growth. It sounds like he expects it to have impacted the U.S. economy. Depending on how severe the impact is, or how long it lasts, it could have a bullish influence on gold prices.

Furthermore, there is talk that China will not be able to fulfill its Phase One Trade Deal Obligations and this too, could hurt the economy and investor sentiment.

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