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Oil Falls 4% While Gold Nears $1,700 as Virus Rocks Commodities

Oil Falls 4% While Gold Nears $1,700 as Virus Rocks Commodities
(Dollar Photo Club)
 

Monday, 24 February 2020 08:33 AM

Renewed fears that the coronavirus will harm global growth rocked commodity markets again on Monday, with oil and metals prices tumbling while gold soared toward $1,700 an ounce amid a global flight to haven assets.

As the deadly virus spreads more widely outside China, raising the threat of a global pandemic, finance chiefs and central bankers from the world’s largest economies said they see downside risks to the world economy persisting.

That’s spurring fresh alarm in commodity markets that had started to recover from lows hit earlier in the month when China’s virtual shutdown threw supply chains into chaos. With the International Monetary Fund cutting its global growth forecast and warning that it’s also looking at more “dire” scenarios, investors are concerned that risks to raw material demand are worsening.

“With the volatility we’re seeing in the coronavirus event, that’s creating angst in the market on the back of growth and demand expectations and we’ve seen oil prices weaken,” said David Lennox, a resource analyst at Fat Prophets in Sydney. “The converse of that is the same event is carrying investors toward a safe haven play and that’s gold.”

Oil prices slumped by nearly 4% on Monday as the rapid spread of the coronavirus in countries outside China added to investor concerns over the effect on demand for crude.

Global equities also extended losses as worries about the impact of the virus grew, with the number of cases jumping in Iran, Italy and South Korea.

Brent crude futures fell $2.20, or 3.8%, to settle at $56.30 a barrel. U.S. West Texas Intermediate (WTI) crude futures fell $1.95, or 3.7%, to settle at $51.43 a barrel.

"The reports of the coronavirus spreading is raising more fears of demand destruction," said Phil Flynn, an analyst at Price Futures Group in Chicago. "When we saw the big move down in the stock market, oil traders were selling first and asking questions later."

The coronavirus has infected nearly 77,000 people and killed more than 2,500 in China, most of them in Hubei.

South Korea's fourth-largest city, Daegu, was increasingly isolated as the number of infections there rose rapidly.

Europe's biggest outbreak is in Italy, which reported a seventh death from the flu-like virus and 220 infections.

Kuwait, Bahrain, Oman and Iraq on Monday recorded their first new coronavirus cases, all involving people who had been in Iran, which raised its toll from the disease to 12 dead and 61 infected.

Afghanistan, Iraq, Kuwait, Saudi Arabia and Turkey imposed travel and immigration curbs on Iran.

Still, World Health Organization chief Tedros Adhanom Ghebreyesus said that using the word "pandemic" did not fit the facts.

"We must focus on containment while preparing for a potential pandemic," he told reporters in Geneva, adding that the world was not witnessing an uncontained spread or large-scale deaths.

Saudi Aramco expects the coronavirus impact on oil demand to be short-lived and for consumption to rise in the second half of the year, Chief Executive Amin Nasser told Reuters.

On Monday, local health officials in China said that four provinces had lowered their virus emergency response measures.

Goldman Sachs said commodity prices could fall sharply before any rebound on the back of Chinese stimulus efforts.

"The promise of stimulus has made commodity markets act like equity markets, building up risks of a sharp correction," the bank said in a note.

Bank of America Global Research kept its 2020 forecast for the price of Brent crude steady at $62 a barrel, citing voluntary and involuntary declines in OPEC supply and the resilience of markets to geopolitical shocks.

Meanwhile, U.S. President Donald Trump has decided to step up a sanctions campaign on Venezuela's oil sector and will be more aggressive in punishing people and companies that violate them, the top U.S. envoy to the Latin American country said.

Elsewhere, gold soared as much as 2.8% to its highest level in seven years, as investors worried about global economic growth in the face of sharply rising coronavirus cases outside China.

Spot gold was up 1.7% at $1,671.35 per ounce by 1:59 p.m. EST (1859 GMT). The session high of $1,688.66 was the highest level since January 2013.

U.S. gold futures settled 1.7% higher at $1,676.60 an ounce.

"The markets are spooked right now," said Bob Haberkorn, senior market strategist at RJO Futures, citing coronavirus fears.

"The concern is not about the virus precisely, it is from the economic standpoint. The Dow Jones is down about 1,000 points, the bond yields are also lower."

There was a sharp rise in coronavirus cases reported in Italy, South Korea and Iran, with Afghanistan and Iraq reporting their first cases. However, the rate of infection in China has eased.

Outside mainland China, the outbreak has spread to about 29 countries and territories, with a death toll of about two dozen, according to a Reuters tally.

The World Health Organization said it was worried about the growing number of cases without any clear link to China.

Investors view gold and other assets like government bonds and the U.S. dollar as safe havens during times of stress.

The curve inversion between the 3-month and 10-year U.S. Treasury bond yields deepened, in what economists view as a recession signal. The benchmark 10-year Treasury yield fell to its lowest level since July 2016.

Investors' fears over the virus outbreak triggered a wide sell-off in equity markets. The Dow Jones industrials slid more than 800 points, below its 100-day moving average for the first time since October.

In Europe, markets had their biggest daily declines since mid-2016.

"The upswing in the gold price is being accompanied by further ETF inflows. Speculative financial investors have also increased their bets on rising gold prices significantly," Commerzbank analysts said in a note.

"However, this also means that the gold price upsurge is on shaky ground, so falls can be expected in the event of profit-taking."

Reflecting increased investor interest in bullion, speculators raised their bullish positions on COMEX gold and silver contracts in the week to Feb. 18, data showed on Friday.

Mirroring gold's gains, silver jumped 2.3% to $18.88 an ounce, having hit its highest level since September at $18.90.

Palladium shed 3.1% to $2,619.01 per ounce, while platinum fell 0.3% to $970.17.

© 2020 Thomson/Reuters. All rights reserved.

   
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Renewed fears that the coronavirus will harm global growth rocked commodity markets again on Monday, with oil and metals prices tumbling while gold soared toward $1,700 an ounce amid a global flight to haven assets.
gold, oil, virus, invest
1038
2020-33-24
Monday, 24 February 2020 08:33 AM
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