By Geoffrey Smith
Investing.com -- Gold prices surged to fresh seven-year highs as portfolio investors flocked to haven assets as the coronavirus spread menacingly outside of China.
The number of confirmed cases in South Korea leaped to over 200, putting investors on alert for signs that the virus may be difficult to contain even in countries with advanced health care systems (and reliable data).
By 7:45 AM ET (1245 GMT), gold futures for delivery on the Comex exchange were up 1.1% at $1637,65 a troy ounce, only a whisker below the intraday high of $1,639.25. Spot gold was up 1.0% at $1,635.17. It's now up 7.8% for the year to date.
Additional momentum came from a fresh endorsement from Wall Street, as Goldman Sachs (NYSE:GS) analysts followed Citigroup’s in revising their target price for the yellow metal higher.
According to various newswire reports, Goldman said the near-term upside stretched as far as $1,750/oz but could go as far as $1,850/oz if the economic impact of the outbreak stretches into Q2 and triggers a significant response from central banks.
“We see such a rally being driven by the continued search for yield, increased demand for portfolio diversification and higher political uncertainty," Goldman wrote, adding that gold is "a strategic allocation to protect a portfolio from geopolitical risks such as the current outbreak, de-dollarization and negative real yields.”
Saxo Bank strategist Ole Hansen noted that U.S. 10-year real yields are currently at -0.15%, a seven-year low. He estimated near-term upside potential as far as $1690/oz.
Earlier this week, Citigroup (NYSE:C) had forecast gold could hit $2,000/oz over the course of the next year or two.
Central banks in China and south-east Asia have already loosened policy to support their economies, but there is no sign yet of the Federal Reserve following suit – albeit bond investors appear to be increasing their bets on it dong so, pushing U.S. two-year yields down to 1.38%, well below the current fed funds rate. The yield on the 30-Year Treasury hit an all-time low of only 1.91% earlier this week, meanwhile.
Elsewhere, silver futures hit their highest in six weeks at $18.56 an ounce before retracing to $18.49. Platinum futures rose 0.9% to $987.30, still below their highs for the week. Copper futures, which tend to move inversely to gold, fell 0.3% to $2.58 a pound.