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Gold holds firm in positive territoire, investment demand to grow in 2020

  • Gold is sitting in bullish territory due to safe-haven investment.
  • Coronavirus is in the driver's seat, but analysts still expect that investment demand for the yellow metal will grow in 2020.

The price of gold is firm and higher by 0.67% on the day so far, having travelled from a low of $1,556.60 to a high of $1,578.30. Worries with the coronavirus taking a turn for the worse on Wednesday night, following the announcements by the Chinese health officials in the Hubei province reporting 242 new deaths and 14,840 new cases of the flu-like virus, dented risk appetite. 

The worldwide death toll is up to at least 1,357 and the number of confirmed cases to more than 60,000. The uncertainty of the situation is supporting safe-haven asset classes due to the economic ramifications that a full breakout into a pandemic would have on the global economy. However, considering the means in which the Chinese health officials have changed the method of diagnosing cases of the illness and as such, there was a sevenfold increase in the number of new cases of the virus, based on a new diagnostic protocol, according to China’s National Health Commission.

Investment demand for the yellow metal to grow in 2020

Analysts at TD Securities explained that gold is a crowded trade, although the marginal day-to-day flow appears to be driven by the change in risk sentiment as it relates to safe-haven demand.

"The bull market narrative is widely acknowledged, which translates to an above-average number of traders holding a long position, although the average trader's position size is not excessive. But, when periods of haven buying drive prices to the upper-bound of the recent range, the position sizing per trader becomes more of a worry, making short term shakeouts a more prominent risk."

The analysts still expect that investment demand for the yellow metal will grow in 2020, as asymmetry from the Fed and the suppression of real rates across the globe will keep the gold bug alive. "That being said, we expect only marginal flows from CTAs as algorithmic trend followers remain well-positioned for the precious metal bull market."

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