Gold sees hesitant gains but uptrend still intact

Gold price breached $1,700/oz this week for the first time since late 2012. However, the momentum did not last long, and price retreated to trade near $1635/oz. Gold is struggling to build on the gains as safe haven buying is offset by concerns about consumer demand.

The virus outbreak continues to remain out of control, threatening to have a major health and economic impact. Meanwhile, increasing restrictions to limit the spread of the virus has added to economic concerns. The nervousness in the market has caused market players to seek refuge of safe haven assets like gold, bonds and Japanese Yen.

With increasing economic risks, more and more central banks are considering monetary easing measures to support their economies. The Bank of England is the latest in the list of central banks to cut rates while market players are hoping for more action from the US Federal Reserve at next week's meeting. Monetary easing measures have also helped gold prices move higher.

However, with increasing risks to the global economy, market players are also worried about impact on consumer demand. The Chinese economic activity has slowed down significantly and this may keep consumer spending low on luxury goods. Record high prices and growth concerns may also keep demand low in India.

ETF flows also show that market players have become increasingly price sensitive. Gold holdings with SPDR ETF surged to 963 tonnes earlier this week, the highest since Oct.2016, but has seen outflows as price failed to sustain.

Gold's rally is also hampered as market players assess the possibility of recovery later in 2002. Chinese virus cases have slowed down drastically and it is already working to resume normal operations soon. Once the virus outbreak peaks worldwide also, we may see a quick rebound in economic activity which will be helped by the monetary and fiscal measures announced in the last few weeks.

While gold is struggling to build on the gains, there is still lots of uncertainty relating to virus outbreak and unless there are clear signs that the virus has been controlled, market players may remain wary to reinvest in riskier assets and this may keep buyers engaged.

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