March 9 solstice March 13 gold market overview: Global financial markets this week manager bloody, the stock market on Thursday a biggest one-day fall since 1987 “black Monday”, weeks its worst performance since the financial crisis, and as a safe haven of gold were also selling, early in the week to multi-year highs of $1703.09 an ounce plummet, after five consecutive trading day sharply, a minimum test of $1504.40 an ounce on Friday, closed at $1529.81 an ounce, this week the accumulative fell $144.89, or 8.65%, its biggest weekly drop since 1983.
Epidemic + stock market crash investors indiscriminately sell assets
The new coronavirus continues to wreaking havoc. The outbreak is getting worse outside China. As of Monday, the global total of confirmed cases of new coronavirus reached 157174, with 5839 deaths. Within weeks, the world health organization declared the new pneumonia a global pandemic. Global health experts say declaring a pandemic would have significant political and economic implications. It could further destabilize already fragile world markets, leading to tighter restrictions on travel and trade.
Europe, led by Italy, was identified as the new epicenter of the outbreak. Italy has so far confirmed 21, 157 cases, with 1, 441 deaths. A total of 36, 314 people have been infected and 1, 665 have died in 46 European countries.
The multinational response to the outbreak has escalated. Many European countries declared a state of emergency. Close schools and ban large events. US President Donald Trump has declared a state of emergency at the White House after announcing a travel ban on 26 European countries.
This week, humans faced the threat of a new coronavirus and a historic stock market crash. There are signs that investors are losing faith in the authorities’ ability to contain the new coronavirus crisis, especially in the face of a complete blockade in Italy. “This coronavirus is scary,” said Kathy Entwistle, senior vice president of wealth management at UBS. “people don’t know what’s going to happen. It looks like a tsunami is coming. We knew it would explode one day, but no one knew how it would turn out.”
The global stock market rout, led by the us, saw the dow, s&p, and NASDAQ fall 10.4%, 8.9 and 8.2%, respectively. The pan-European Stoxx 600 fell 18.7 percent, its biggest drop since October 2008. Asian stock markets also suffered.
Both the dow and the s&p 500 suffered their biggest one-day losses since the stock market crash of 1987, and this week’s losses of more than 7 percent triggered circuit breakers for the second and third time in U.S. history. A dozen countries, including Brazil, Canada, Thailand, the Philippines, Pakistan, Japan, South Korea, Indonesia, India, Thailand, Mexico, Colombia and Sri Lanka, experienced one or more “circuit breakers” this week.
The stock market crash was also triggered by changes in the oil market. Opec failed to reach an agreement with Russia last week to cut output. Opec members had planned to deepen production cuts in response to the outbreak, but Russia has insisted on maintaining existing production. Saudi Arabia launched a global oil price war in a surprise move on March 7: first, the kingdom slashed the price of crude it sells to markets abroad, including Europe, the far east and the United States, at the biggest discount in more than 20 years to lure foreign refiners into buying Saudi crude. Meanwhile, the discount on flagship Arabian light crude, sold to north-western refiners, was extended to $8 a barrel for as little as $10.25. U.S. WTI crude tumbled 23% this week, while brent crude fell 25%, its biggest weekly drop since December 2008.
Gold, traditionally seen as a safe haven, was sold indiscriminately. Gold spiked after climbing to a multiyear high. Market analysts pointed out that in order to save the risk of stock market burst, in addition to the personal cash supplement collateral, investors may withdraw funds from the gold market, and into the stock market supplement collateral, which directly led to the gold market fell.
“There may have been some liquidation of gold… Some may be surprised by the fall and say gold is no longer a safe haven asset, but in this case it helps generate liquidity whenever needed, “said Giovanni Staunovo, commodities analyst at ubs.
Georgette Boele, precious metals strategist at abn amro, noted that at one point during the 2008 financial crisis, gold prices fell about 20 percent. Gold is expected to average $1,523 an ounce this year, up from an earlier estimate of $1,490, but well below current prices.
“Gold fell as investors scrambled for cash,” said Ed Moya, an analyst at online trading platform OANDA.
“It’s a rush to liquidate assets,” said David Meger, head of metals trading at High Ridge Futures. What we have seen is an indiscriminate sell-off of every asset class by market participants and investors. “People are unwinding their gold and silver positions to finance their equity positions or whatever.”
Government central bank “combination punch” to rescue gold is still bullish?
In this context, governments and central Banks have stepped in to implement emergency measures to deal with the crisis.
In response to the sell-off in global markets, the bank of Japan injected 500 billion yen. The bank of Japan announced on Friday that it would use longer-term market operations to provide sufficient liquidity from next week. If necessary, it will continue to increase its purchases of JGBS. Measures will be taken to maintain the stability of the repo market. Action is being taken to ensure market stability until the end of march. A plan to sell JGBS repo futures will be announced on March 25.
In order to support the development of the real economy and reduce the real cost of social financing, the people’s bank of China (pboc) has decided to implement a targeted RRR cut for financial inclusion on March 16, 2020 by 0.5 to 1 percentage point for Banks that meet the assessment criteria, the central bank said. In addition, eligible joint-stock commercial Banks will be further targeted to cut the reserve requirement ratio by 1 percentage point to support the issuance of loans in the inclusive financial sector. The targeted RRR cut will release 550 billion yuan in long-term funds.
The federal reserve on Thursday offered $1.5 trillion in short-term loans to stem a market meltdown, signaling it would take more aggressive measures to stimulate the economy.
The federal reserve, the bank of Canada and the bank of England have all cut interest rates on an emergency basis. Other central Banks that have cut interest rates in recent days include Serbia’s central bank, Norway’s central bank and Iceland’s central bank. The bank of Korea is reportedly in talks about a possible emergency interest rate cut. Vietnam’s central bank may consider cutting its policy rate.
The ECB’s latest monetary policy decision on Thursday announced an extra €120bn in asset purchases until the end of the year. The interest rate of the targeted long-term refinancing operation (tltro-iii) is lower than the average refinancing rate. The first long-term refinancing operation (LTRO) will take place on March 17. The long-term refinancing operation (LTRO) will be distributed weekly, with all loans due on June 24. In the meantime, temporary capital assistance will be provided to Banks.
Governments are also acting urgently. The chancellor of the exchequer, rich sunak, unveiled his budget for 2020 on Thursday, unveiling a £30 billion spending plan to help the British economy recover from the effects of the pneumonia epidemic. The £30bn budget includes £12bn earmarked for new coronavirus, at least £5bn for the NHS and £7bn for businesses and workers across the UK.
Bruno Le Maire, France’s finance minister, told the press this week that the government would support partially state-owned companies such as air France and Renault “at all costs”. He said it would cost tens of billions of euros.
The German government promised to spend all the money necessary to support the economy during the outbreak. “We are taking all necessary measures to protect workers and companies,” German finance minister Olaf Scholz told a news conference.
Ireland announced €3 billion in spending, including more on health care and compensation for sick leave. Italy has announced a moratorium on loan payments to ease the plight of isolated families.
House speaker Nancy pelosi said Friday that lawmakers and the White House are close to reaching a deal on financial aid amid the outbreak of the coronavirus. Treasury secretary Steven mnuchin also told CNBC that the White House and congress are close to a deal. “The President is absolutely committed that this will be a governmentwide effort and that we will work with the house and the senate,” mnuchin said.
The Iranian government has asked the international monetary fund for $5 billion in anti-ebola funds.
Still, experts are skeptical that the policies will be enough to turn the tide. Mohamed el-erian, chief economist at Allianz, warned: “advanced economies are now likely to feel the enormous forces that have brought their economies to a sudden halt, undermining both supply and demand.” “A collapse in economic activity is likely to be amplified by fear, uncertainty and adverse financial feedback.” “I believe there is a high probability of a global recession.”
Peter Schiff, a veteran Wall Street prophet and chief executive of Euro Pacific Capital, said the new coronavirus would trigger a recession bigger than the 2008 financial crisis because of high debt levels. ‘after the market declines, excess capital supply could flood the market and drive up inflation, both of which are good for gold,’ he said. Gold has met resistance in the recent stock market selloff, but Schiff said the metal will remain a safe haven asset. “Gold will be the only safe haven asset left,” Schiff said, adding that gold has historically fallen with equities in the early stages of bear markets.
Analyst DAVID STEVENSON has written that gold is a hedge against future policy mistakes. “The asset classes, particularly us equity indices, are experiencing what the Austrian economist Ludwig von Mises called a ‘collapsing boom’,” he argues. This is a symptom of rising inflationary pressures and the result of an excessively long cycle of freely available cheap credit. Gold is supported by excess and rising negative real interest rates, with reserves or the value of gold, which account for less than 2 percent of global financial assets, set to rise sharply in the coming years.”
UBS analyst Joni Teves said the trend in the gold market was clearly to the upside. “Safe-haven demand remains high across the market and the weakness in bond yields is also positive for gold.” For gold prices to fall after the rally, driven by investors selling gold to raise margin, Teves said there was a real case. “But investors will still hold gold to keep their portfolios diversified and will choose to buy on dips when gold prices fall.” In the short term, gold is expected to test the resistance level of the $1,700 / oz mark.
Market outlook for next week
“Gold is not a clear winner because many investors are also looking to scale back and buy equities,” Edward Moya, senior market analyst at Oanda, told MarketWatch. With [us Treasury] yields showing signs of stabilising, gold is going to struggle somewhat in the short term.”
Kitco’s weekly golden week survey, released on Friday, showed Wall Street analysts are divided on where gold will go next week. “Gold traders are confused about the volatility and ups and downs of gold prices over the past week,” said Jim Wyckoff, senior technical analyst at Kitco.
Fifteen market professionals took part in the Wall Street survey. Six professionals (40% each) held bullish and bearish views. Three professionals (20%) are neutral and believe prices will move sideways.
“With the market collapsing, gold has again been hit by liquidation,” Adrian Day, chairman and chief executive of Adrian Day Asset Management, said of this week’s price drop. “It is a source of liquidity in these market panics. But once the panic unwinding wears off, even if the market does not recover, gold will resume its hedging function and rise.”
Richard Baker, the editor of the Eureka miners report, expects gold to return to the $1,620 area next week as recent selling fades.
“The best news for gold this week is its performance relative to the troubled s&p 500,” Baker said. “Since the 2018 presidential election, gold has recovered all of its losses against the equity benchmark… Even more. Even as gold fell below $1,600, the gold price as a percentage of the s&p 500 surged to its highest level since late 2016. Since October 2018, AUSP has been on an upward trend, with lows moving up. Gold has risen tenaciously against equities. It’s a bullish signal that clears the way for the $1,800 level in 2019.”
Moreover, Mr. Baker adds, negative real interest rates still mean “a very positive environment for non-interest-bearing assets such as gold”.
Peter Hug, global head of metals trading at Kitco, said he expected gold prices to close higher after next week’s fed meeting. Policymakers are expected to cut interest rates again on top of the emergency half-point cut earlier this month.
Meanwhile, Daniel Pavilions, a senior commodities broker at RJO Futures, expects further weakness in the short term before gold rebounds.
“As the dollar goes up and equities go up, gold could go down a bit,” he said.
Pavilions said gold prices would fall and stocks could rebound next week as the fed moves to try to contain the impact of the coronavirus on the economy. But he added that stocks could then fall again as gold prices rose.
“I think it’s likely to stay low next week,” said Phil Flynn, referring to the possibility of more liquidations and the increased likelihood that central banks around the world will sell gold to increase liquidity to fight the coronavirus. “Russia, with its large gold holdings, could ride out the oil price war with Saudi Arabia on its back.”
Mark Leibovit, the publisher of VR Metals/Resource Letter, chimed in: “I warned about cyclical peaks, which are usually common at this time of year. Gold is overvalued above $1,445. Can it reach that level? It depends on whether the financial crisis forces more liquidation in the gold market.”
Andrew Hecht, a writer for Seeking Alpha precious metals, said he expected gold prices to “go up and down” in an “extreme environment.”
“Gold went from over $1,030 to $681 in 2008 and then [gold] hit a record in 2011,” he says. Central bank policy is ultimately bullish.”