Gold futures for April rallied early Monday on the heels of positive trends seen in the global gold prices which climbed over two percent as jitters that the coronavirus outbreak could push world markets into recession sent investors scrambling for safe havens.
The beating in global stocks escalated, with investors worried by weekend figures from China that showed its fastest contraction in manufacturing activity, stoking paranoia of a global recession caused by the deadly health emergency.
Spot gold rates rallied 1.3 percent higher to $1,602.90 an ounce. Other assets that are viewed as safe havens were also in the spotlight early Monday, with the benchmark US ten-year Treasury bonds retreating to a new low, while the Japanese currency climbed to its highest mark since October versus the US greenback.
Friday's retreat in gold prices was linked to traders being forced to unload assets to cushion losses in other asset classes such as equities. Among other precious commodities, palladium was up 0.8 percent to $2,610.62 an ounce, platinum rose 1.8 percent to $880.11 while silver inched up 1.4 percent to $16.89.
China's manufacturing companies are having a difficult time finding enough manpower to fill production facilities as the regular post-Lunar New Year labor migration trickles rather than flows, hampering the a restart of the country's resumption of economic activities in the midst of the virus problem.
The yellow metal is likely to remain volatile as it is vulnerable to profit-taking at higher levels. But, the trend is generally on the upside, and it should make a retest at 42,000 which will act as a resistance. Local prices of gold were down around 5.45 percent from the top and silver prices dropped over 10 percent from their recent peaks.
Prices in the global market also plummeted as gold hit a seven-year peak at the start of the week but it was the largest weekly fall since November.
Analysts say gold will remain strong as a result of increased safe haven demand amid economic instability in China, sluggish global bonds and a weak US currency. On the other hand, a higher level of profit booking and lingering fears over physical demand from leading consumer China and India are likely to weigh down on sentiments.
Meanwhile, gold prices would also be backed by projections of a rate reduction by the US central bank. Federal Reserve chairman Jerome Powell issued a rare statement of reassurance by stressing that the US will use "tools" to lift the economy, a strong indication of a coming interest rate cut. Lower interest rates strengthen non-yielding asset classes like gold.
