The price of gold has fallen this morning by £12 an ounce, following unconfirmed reports in the Chinese media that a drug has been found to help treat patients infected with coronavirus.
Following the news this morning that there may be a treatment, gold fell from £1,200 per ounce to £1,188.87 – a 0.93% change in the space of four hours. Markets like the FTSE 100 (+ 0.76%) and STOXX 600 (+ 1.08%) have responded positively this morning, and the American markets are expected to do the same early this afternoon.
Risk sentiment refers to risk-on, risk-off behaviour from investors. In times of economic confidence, investors take more risks (risk-on), but when there is less confidence or certainty, caution comes in to play (risk-off). Investments into safe haven assets like gold, the Yen, the Swiss Franc, or Treasury bonds would be considered risk-off, as these assets typically have a negative correlation with stock market losses and major currency depreciation.
The gold price for the last 24 hours, showing the market volatility and today's treatment reaction.
Gold fell yesterday from £1,207.74 per ounce at 11am, to £1,188.70 by 5:45pm, with investors less fearful of an illness that has a lower mortality rate than the flu, but the gold price picked back up overnight as the Asian markets continued to be subdued.
At its lowest, gold touched £1,184.23 per ounce, but given the unsubstantiated nature of the claims coming from the Chinese media – known for state involvement – it could be an act designed to reassure investors in China’s main stock markets.
Confirmation that a treatment has been successfully created would be a benefit to global stock markets, and investors. Safe havens like gold and the Swiss Franc saw an upturn in demand following the announcement of the coronavirus threat, but government bonds have also been picked up. The limited availability of yields means some investors are currently buying negative-yielding bonds from treasuries; effectively paying to lose money in the future.
If the treatment is real and effective then it is likely to benefit global stock markets at the expense of assets like gold, but if China’s claims are premature or even deliberately false then markets could tumble rapidly – benefiting gold and other precious metals.