Gold broke out of its recent range on Friday and was course to end the week at its highest in two weeks, as the spread of the coronavirus threatened to have an ever greater impact on the Chinese economy – and in turn the world’s. By 11:15 AM ET (1615 GMT), gold futures for delivery on the Comex exchange were up 0.3% at $1,570.75 a troy ounce, rallying with U.S. Treasury bond prices that drove yields down by some four basis points along the curve. Spot gold was up 0.5% at $1,571.10 an ounce. Standard & Poor’s Ratings Group warned late on Thursday the outbreak could take 1.2 percentage points off Chinese gross domestic product growth this year, leaving it well short of last year’s level of 6.1%, which was in itself a three-decade low. “It would not be surprising for the Chinese economy to suffer a negative impact at a time when it has already been relatively weak,” said BlueBay Asset Management’s chief investment officer Mark Dowding in a research note. “Given the importance of the Chinese economy, this has been having global ramifications.” The outbreak is still at a stage where contagion fears are likelier to rise than fall, something that could test the recent rally in risk assets, but a huge increase in liquidity in recent months (the Fed’s balance sheet alone has risen by $400 billion since September, notes Franklin Templeton’s CIO Sonal Desai) is providing strong support. “Given the positive performance in equity and credit markets over the past couple of months, it would be tempting to think that these markets are ripe for a correction,” BlueBay’s Dowding said. “Yet they seem to be proving resilient in the face of abundant liquidity at a time when investors seem to have plenty of cash they need to put to work.” The situation is still far from a worst-case scenario, with the World Health Organization still declining to designate the outbreak a matter of global concern. But with China having already placed travel curbs out of 10 cities with up to 40 million inhabitants, and with local authorities clamping down on public events to celebrate the lunar new year and closing movie theaters and other venues for mass gatherings, a negative impact on Chinese retail sales, at least, seems increasingly likely. Elsewhere, Silver futures rose 1.1% to $18.02 an ounce, while platinum rose 0.6% to $1,013.40.Copper prices, which have been weak all weak, fell another 1.5% to $2.68 a pound.

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