Coronavirus results in Risk-off – Gold about to recapture 1,600 USD?

By Admiral Markets

Source: Economic Events January 29, 2020 – Admiral Markets’ Forex Calendar

Gold has seen increasing demand against the region around 1,555 USD, approaching the 2019 yearly highs. The main driver was the latest news and developments on an outbreak of a new virus in China (Coronavirus) which currently sees a bigger impact on world financial markets and the risk tendency among market participants.

While the main question is whether these risk-off tendencies last (based on a 2017 paper, economists calculated that the expected annual losses from pandemic risk could amount to ‘only’ about $500 billion (ca. 0.6% of global income) per year), Gold still finds other, bullish drivers.

While today’s Fed rate decision shouldn’t deliver anything new and we don’t expect much from it, in fact, see a re-formulation of the status quo, any changes of the current forward guidance in regards to the recent funding pressures in the Repo market will be more dovish and thus positive for the precious metal.

Technically, we favour further gains in Gold, too. As long as we trade above 1,440/450 USD the potential next target on the upside can be found in the region around 1,650/700 USD.

And then there is also a noteworthy bullish seasonality.

Last week on Friday, Gold entered a bullish seasonal window, which lasts until February 4.

In more detail, the seasonal bullish pattern developed over the last 20 years with Gold seeing an average gain of 23.50 USD for 15 of the past 20 years.

In the remaining five years, it dropped on average only 11.73 USD, while the maximum loss of the pattern was 23.90 USD and the maximum drawdown being 26.05 USD, adding to the advantageous outlook for Gold bulls:

Source: Admiral Markets MT5 with MT5-SE Add-on Gold Daily chart (between October 17, 2018, to January 28, 2020). Accessed: January 28, 2020, at 10:00pm GMT – Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2015, the value of Gold fell by 10.4%, in 2016 it increased by 8.1%, in 2017 it increased by 13.1%, in 2018, it fell by 1.6%, in 2019, it increased by 18.9%, meaning that after five years, it was up by 28%.

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