Gold Glitters As Coronavirus Spreads Globally: 5 Top Picks

Investor apprehensions, regarding the recovery of global economic growth and its consequent impact on stock markets, triggered by the coronavirus outbreak in China have increased the investment appeal of safe-haven assets. The demand for gold, considered as a key investment option during times of financial uncertainty, has also risen.

Per China’s official statement, the coronavirus has so far infected nearly 76,000 people and resulted in deaths of 2,200 people. South Korea has also reported first citizen death due to COVID-19. Further, Japan reported death of a pair of elderly passengers due to the dangerous virus.. Nearly, 20 countries have been infected with coronavirus.

Gold Price Skyrockets

On Feb 20, Wall Street tumbled as investors remained jittery regarding global economic recovery due to the spread of coronavirus. Consequently, market participants shifted their funds from risky assets like equities to safe-havens such as precious metal like gold, dollar-denominated funds and U.S. government bonds.

On Feb 20, future price of gold for April delivery surged $8.70 or 0.5%, to settle at $1,620.50 an ounce on Comex. That was the highest closing of most-active contract settlement since Feb 14, 2013. Notably, gold price breached the key psychological barrier of $1,600 and soared to $1,610.90 per ounce on Jan 8, following the escalation in U.S.-Iran geopolitical conflict. Following the event, the price of yellow metal declined but stayed above $1,550.

Momentum Likely to Continue

The present scenario of gold price soaring despite a surge in U.S. dollar index has left several economists and financial experts perplexed. On Feb 20, the U.S. Dollar Index (DXY), a gauge of the greenback against a basket of a half-dozen major currencies, gained 0.1% to settle at 99.831, its highest closing in three years.

Usually, a strong U.S. dollar weakens demand for other dollar-denominated bullions like gold. However, the northbound movement of both safe-haven assets is an indication about how the outbreak of coronavirus dented investor confidence.

Moreover, market participants are expecting major central banks to pursue easy monetary policies with the intention of injecting more liquidity into the system. Lower interest rates decrease the opportunity cost of holding non-yielding bullion, making gold cheaper for investors holding other currencies.

Buying pressure on gold is likely to remain firm with investors focusing precious metals as a store of wealth and hedge against market turmoil. Additionally, central banks are buying gold for rapid balance sheet expansion, resulting in a gold price rally.

Central Banks Pursuing Easy Monetary Policies

On Feb 20, the People’s Bank of China cut its benchmark one-year loan prime rate by 10 basis points, and the five-year loan prime rate by 5 basis points. This was in addition to the recent 10 basis points reduction of one-year mid-term lending rate by the Chinese central bank. Moreover, the government of China is taking several other monetary measures.

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In the United States, the Fed has kept its benchmark lending rate intact while stating that coronavirus outbreak is a major near-term concern for the global economy. Per the CME FedWatch, majority of market participants are expecting one or more rate cut this year if coronavirus-led downturn continues beyond first-quarter 2020.

Our Top Picks

At this stage, it will be prudent to invest in gold stocks with strong growth potential. We have narrowed down our search to five such stocks. Each of these stocks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see Zacks Investment Research