The Strategist

Investors turn to protective assets amid coronavirus spread

02/26/2020 - 09:55

International investors are alarmed by the high pace of the spread of coronavirus outside of China. Therefore, they are fleeing to the protective asset, gold. The assets of exchange-traded funds investing in precious metal reached a new historical level of 2.61 thousand tons, adding over 90 tons in a month and a half. As a result, the value of gold returned to the values of seven years ago.
Data from Bloomberg agency indicates that the assets of exchange-traded index funds investing in gold continue to update maximum values. According to the latest available data - trading results on Monday - they grew by 0.8 tons, to a new historic maximum of 2614 tons. Strong assets growth has been observed for the sixth week in a row, and during this time they have grown by more than 90 tons. The high interest of international investors in gold is evidenced by Emerging Portfolio Fund Research (EPFR) data. A Bank of America report (taking into account EPFR data) reports that the total amount of foreign investment in gold since the beginning of the year amounted to $ 11 billion - 75% of investments in this asset for the whole of 2019.

The increase in investment demand for the precious metal is facilitated by reports that the coronavirus has begun to spread actively outside of China. The new foci of infection are Italy, South Korea and Iran. In South Korea, the number of patients in the near future will exceed 1 thousand people. In Italy, according to recent data, more than 300 people have already been infected, and the growth rate is the same as in the early days of the spread of the epidemic in China.

In such conditions, investors traditionally go into protective assets, such as US Treasuries and gold. The yield on ten-year US bonds reached 1.32% per annum, updating the minimum since July 2016. According to Bloomberg, gold quotes on February 24 reached $ 1,689.31 per troy ounce on the spot market, the highest value since January 2013. On Tuesday, prices stabilized around $ 1,650, which is 6% higher than six weeks ago.

The attractiveness of investing in gold adds to the hope that leading financial regulators, primarily the US Federal Reserve, the European Central Bank and the People’s Bank of China, will continue to pour additional funds into the economy.