Against the backdrop of market reactions to the spread of coronavirus, the behavior of gold quotes looks largely paradoxical. Gold traditionally serves as a “protective” asset, the price of which grows under uncertainty and risks in the markets. A recent high above $1,600 was observed during the danger of a worsening military confrontation between Iran and the United States.
In recent days, there has also been an “escape from risks” in financial markets. For example, the gold indicator - “Index of fear” VIX Index - rose by January 28 to the level of 17.5 points, more than 40% since January 21. At the same time, gold quotes from the beginning of the growth of information about the epidemic, from January 20 to January 27, increased from $1,557 to $1,580, that is, by about 1.5%.
The fact is that gold, in addition to “protective” properties for investors, has another side - the inverse correlation of price movement with the dollar. And the causes and manifestations of risks are now very different from the situation, for example, with the “trade wars”.
The current situation with the virus has other implications. Here, even with the “mitigation of risks”, negativity for the United States is not enough. On the contrary, American government bonds, in particular, act as reliable assets for investors, and demand for dollars is increasing.
In this case, the gold received opposed incentives, which became the reason for its weak reaction. At the same time, judging by the upward trend, “risk aversion” now has a stronger effect. This is mainly due to the fact that a noticeable general trend of gold price growth continues as a continuation of the 2019 trend.