The SPDR Gold Shares ETF (GLD) made new highs on Monday before giving up some ground on Tuesday as concerns about the novel coronavirus spread across Europe and the United States. The number of cases in Italy soared past 300 by Tuesday, while the Centers for Disease Control (CDC) warned that the virus would likely spread across the United States over time.
The International Monetary Fund (IMF) believes that the virus will reduce global growth by 0.1% in 2020. China's growth could fall to 5.6%, which is 0.4% lower than the organization's January outlook. Meanwhile, Moody's Analytics believes that the outbreak could reduce U.S. growth during the first three months of 2020 by six-tenths of a point to 1.3%.
While most investors prefer cash during times of uncertainty, gold has always been a safe-haven asset class for those that don't trust sovereign currencies. Gold prices also move inversely to interest rates since rising rates make gold alternatives (like bonds) more attractive. The prospect of lower interest rates therefore boosts the value of gold.
From a technical standpoint, the SPDR Gold Shares ETF broke out from trendline resistance to fresh highs on Monday before giving up some ground on Tuesday. The relative strength index (RSI) remain near overbought levels with a reading of 65.43, but the moving average convergence divergence (MACD) remains in a bullish uptrend that suggests more upside ahead.
Traders should watch for some consolidation near trendline and R2 support at $153.75 over the coming sessions before the commodity resumes its move higher. If the commodity breaks lower, traders could see a move toward R1 support at $151.54 or the pivot point and 50-day moving average near $147.00, although the bull case seems more likely to occur.
The author holds no position in the stock(s) mentioned except through passively managed index funds.