Gold edges up as virus fears deepen after U.S. travel ban

(Reuters) - Gold inched up on Thursday on worries about the economic impact of the coronavirus outbreak as the United States suspended travel from virus-hit Europe, although gains were capped as traders covered margin calls after a plunge in equities.

FILE PHOTO: A one kilo gold bar is displayed in a shop in Dubai's gold souk, April 11, 2006. REUTERS/Tamara Abdul Hadi/File Photo

Spot gold rose 0.2% to $1,637.33 per ounce by 0658 GMT. U.S. gold futures fell 0.3% to $1,637.20.

The travel ban “is a big surprise and a big shock to the market” and shows that investors are yet to see the full financial fallout from the coronavirus outbreak, said IG Markets analyst Kyle Rodda.

On the flip side, traders are selling gold to fund margin calls, providing a headwind for the metal, Rodda added.

U.S. President Donald Trump on Wednesday announced the suspension of all travel from Europe, except from the United Kingdom, to the United States for 30 days, leading to a sell-off in global stock markets and the dollar. [USD/]

However, the bullion did pare some gains from the 0.9% jump it saw earlier during the volatile session.

“...Gold is now feeling the pinch from the fall in financial markets and travel ban. So, investors will keep money out of the markets for some time or book profits from the high levels, because of which we’ve seen some selling pressure in gold,” said Vandana Bharti, assistant vice-president of commodity research at SMC Comtrade.

The World Health Organization (WHO) on Wednesday described the new coronavirus as a pandemic, with more than 119,100 people infected globally.

Global central banks have taken steps to shield their economies from the outbreak, with the Bank of England being the latest to cut interest rates on Wednesday. The U.S. Federal Reserve reduced rates in an emergency move last week.

The European Central Bank is expected to follow suit when it holds its meeting later in the day.

While markets have priced in a 10 basis point move, rates are already at a record-low of minus 0.5%.

Lower interest rate reduces the opportunity cost of holding non-yielding bullion.

Elsewhere, auto-catalyst metal palladium dipped 3.9% to $2,214.91, having earlier fallen as much as 5.9% to a near two-month low.

“Palladium is one of the riskier assets,” SMC Comtrade’s Bharti said, adding that reduced demand from the automobile sector is weighing on the metal.

Silver fell 0.7% to $16.64, while platinum rose 0.2% to $861.49.

Reporting by Asha Sistla and K. Sathya Narayanan in Bengaluru; Editing by Aditya Soni and Uttaresh.V