Gold’s been under the weather

Last week we were surprised by the limited reaction in gold. With so much risk-off tones in the air due to the coronavirus, we had expected to see more than the much-muted reactions in gold. So, it was helpful to come across this Bloomberg piece which illuminated the perspective for gold. The following factors have been keeping a lid on gold:

1. Recession fears have fallen. The Bloomberg Economics US Recession probability model shows receding chances of a downturn within the next 12 months. The latest reading is strongly down from 2019 highs and below the levels that anticipated past recessions. The November reading was 26% down from 29% in October and early indications are that December’s readings will show reduced risks for 2020.

2. Russia’s gold buying is expected to be the lowest in 6 years and China’s gold buying is on hold.

3. Gold ETF holdings, at already elevated levels, moved higher again. However, subject to major geopolitical flare-up tensions remain elevated.

Sadly, the coronavirus is now gripping the market after a 2% fall in the Nikkei overnight and the extent of the coronavirus starts to expand. We liked Nikkei shorts last week and they look set to fall further through near-term daily support.