PRECIOUS-Gold gains as coronavirus epidemic fuels safe-haven demand

(Updates prices)
* Gold gains after Tuesday's 1.5% drop
* China virus death toll crosses 490
* Spot gold may retest support at $1,549/oz - technicals

By Asha Sistla
Feb 5 (Reuters) - Gold prices rose on Wednesday, recovering
from a sharp drop in the previous session, as safe-haven demand
was boosted by worries over a fast-spreading coronavirus
outbreak in China.
Spot gold XAU= gained 0.6% to $1,561.62 per ounce by 0801
GMT, after declining 1.5% on Tuesday — the biggest since
early-November. U.S. gold futures GCcv1 climbed 0.7% to
$1,565.60 per ounce.
"There's an increase in demand (for gold) because of flight
to safety with the coronavirus and concerns about (economic)
growth," said John Sharma, an economist at National Australia
Bank (NAB).
"We are still witnessing deaths and quarantine problems. As
long as deaths are around, there'll still be increasing demand
for gold."
The death toll in China passed 490, as two U.S. airlines
suspended flights to Hong Kong following the first fatality
there and 10 cases were confirmed on a quarantined Japanese
cruise ship. The virus would delay a surge in U.S. exports to China
expected from the Phase 1 trade deal that is set to take effect
this month, the White House's top economic adviser said on
Tuesday. Underpinning the metal further was a private sector survey
that showed growth in China's services sector slowed for a
second straight month in January. "Gold tested and failed numerous times ahead of $1,590 an
ounce over the last week. It implies that the Wuhan situation
would need to escalate sharply to give gold the necessary
momentum to rise above $1,600 an ounce," Jeffrey Halley, senior
market analyst at OANDA, said in a note.
Gold hit a four-week high of $1,591.46 an ounce earlier this
week, before paring gains as risk appetite improved after China
took measures to cushion the economic impact of the outbreak.
Asian stocks gained as China readies more measures to
support its economy jolted by the outbreak. MKTS/GLOB
"If confidence continues to increase that the worst is
behind us, gold will continue to suffer — a daily close below
$1,550 sets up a much deeper potential correction," Halley said.
The metal may retest a support at $1,549 per ounce, with a
good chance of breaking below this level and falling towards the
Jan. 14 low of $1,535.75, said Reuters technical analyst Wang
Tao. TECH/C
Among other precious metals, palladium XPD= rose 1.5% to
$2,470.77 an ounce, after touching a near two-week peak of
$2,478.00 earlier in the session.
Silver XAG= climbed 0.7% to $17.70, while platinum XPT=
inched up by 0.1% to $964.09.