Gold holds above $1,600 on fears over economic impact of virus

• Spot gold was little changed at $1,603.20 per ounce by 0702 GMT, having surged to its highest since Jan. 8 at $1,605.26 earlier.
• The U.S. dollar, also considered a safe-haven, scaled a more than four-month high against key rival currencies.
• Lower interest rates reduce the opportunity cost of holding non-yielding bullion and also weigh on the U.S. currency.

Gold prices held steady above the key $1,600 mark on Wednesday as an uptick in equities due to a drop in new virus cases was offset by fears of an economic fallout from the epidemic.

Autocatalyst metal palladium, meanwhile, scaled yet another record peak on a sustained supply shortfall.

Spot gold was little changed at $1,603.20 per ounce by 0702 GMT, having surged to its highest since Jan. 8 at $1,605.26 earlier.

U.S. gold futures rose 0.2pc to $1,606.50.

Asian shares and U.S. stock futures edged cautiously higher as investors tried to shake off worries about the epidemic.

"The big wave of risk-off has sort of dissipated right now, but still the economic fallout is buttressing the demand for gold," Stephen Innes, chief market strategist at AxiCorp.

China reported 1,749 new cases, the lowest daily rise since Jan. 29, bringing the total number of those infected to over 74,000, with 2,004 deaths.

The U.S. dollar, also considered a safe-haven, scaled a more than four-month high against key rival currencies.

"The stronger dollar is not really curbing the inflows to gold ... from an inflation perspective, a stronger U.S. dollar is working against the U.S. Federal Reserve's inflation target and is pointing towards lower interest rates," AxiCorp's Innes said.

Investors await the minutes of the Federal Reserve's Jan. 28-Jan. 29 policy meeting, due at 1900 GMT.

Lower interest rates reduce the opportunity cost of holding non-yielding bullion and also weigh on the U.S. currency.

Indicative of investor sentiment, holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, rose 0.6pc to 929.84 tonnes on Tuesday, their highest since Nov. 11, 2016.

"The short-term dynamics are very difficult to tell simply because the market is in a position where it is considerably over-bought and if we get (any) positive news it could possibly trigger a downside move (in gold)," added Axicorp's Innes.

Deficit-hit palladium rose 3.9pc at $2,738.02 an ounce after having scaled a record high of $2,841.54 earlier.

"Another outstanding session for the white metal as investors scramble amid further fears of a supply shortage following Anglo American forecasting an increase deficit in 2020," MKS PAMP said in a note.

Silver was up 0.6pc to $18.27, having hit a more than one-month high at $18.33, while platinum rose 0.6pc to $998.04.