Plunging Oil Prices, Coronavirus Fears Lift Gold Beyond $1,700

 | Mar 09, 2020 10:08PM ET

Plunging oil prices and rampant coronavirus fears led investors scurrying to buy gold, sending its price above $1,700 an ounce on Mar 8 — at levels last seen in December 2012.

Oil Price War Looming

Saudi Arabia slashed its official selling price and announced plans to raise crude production significantly. This was in retaliation to a breakdown of talks at the OPEC meeting in which Russia refused to lower its crude production. Oil prices have already been under pressure so far due to the coronavirus outbreak, which has impacted demand. On Mar 8, Brent oil futures were down 21% to 35.73 per barrel. Crude oil suffered a 21% drop to 32.52 per barrel on Mar 8.

This dealt another severe blow to the stock markets, which was already reeling under the global economic implications of the coronavirus outbreak. The Dow Jones Industrial Average fell 2013 points or 7.8% to close at 23,851.02. The S&P 500 declined 225.81 points or 7.6% to close at 2746.56. The Nasdaq Composite lost 924.94 points or 7.29% to close at 7,950.68.

Coronavirus Cases Cross 100,000 Mark

Per the World Health Organization’s situation report as of Mar 9, 2020, the number of confirmed coronavirus cases globally is at 109,577 and the death toll is at 3,809. In China, the confirmed cases stand at 80,904. Meanwhile, 28,673 cases have been confirmed outside China, with three countries — the Republic of Korea, Italy and Iran — making up 74% of the cases.


The impact of the same on customer spending, travel restrictions, factory closures in China, disruption in global supply chains, among others, are expected to weigh on the global economy. In fact, Per the Organisation for Economic Cooperation and Development (“OECD”), an escalation in the coronavirus outbreak could cut global economic growth in half and push several countries into recession. The body projects meager 2.4% growth in the world economy this year — the lowest rate since 2009. The growth rate of China is anticipated to be below 5% this year, suggesting a decline from 6.1% reported last year, which was the weakest growth rate in almost 30 years.

Gold Emerges the Winner

In this scenario, gold has become the preferred investment option. Gold prices are currently at 1,675.70 an ounce, up 10% so far this year, riding on U.S-Iran tensions in the beginning, followed by the coronavirus-triggered fears. Also, early this month, the U.S. Federal Reserve lowered the benchmark U.S interest rate by 0.5% to safeguard the economy against the threat of the coronavirus outbreak. This fueled prices as gold tends to attract buyers in a low interest-rate environment. The precious metal was also boosted by a weaker greenback. The U.S. dollar index, which measures the buck against six rivals, moved down 1.11% to 94.87.

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The metal price rose 19% in 2019 — its biggest annual increase since 2010, aided by the U.S-China trade war, geopolitical concerns, the Brexit mayhem and a weak manufacturing sector. Further, three rate cuts by the Fed only added to the rally.