Spot gold was trading at $1, 572.20 an ounce in Asian trading on Tuesday. During the day, gold further held the trend of steady and volatile gains, now hit a high of $1581.83 / oz, up nearly 30 dollars since the day’s low, the current bullish momentum is still very strong.
Buoyed by the federal reserve’s latest stimulus measures and the us fiscal stimulus. The previous session of gold prices in Asia after the early jump in the open after the fall, soon after a period of tight consolidation, trading below the $1,500 level. And Europe and the United States session, long suddenly launched a wave of attacks, gold short – term jumped sharply, since the day’s low as much as DORA nearly 80 dollars. The session has now extended further higher to $1581.83 an ounce, pushing it up nearly $30 from session lows.
COMEX gold futures posted their biggest advance since 2009 last session. COMEX April gold futures settled up $83.7, or 5.5 percent, at $1,567.60 an ounce.
The most actively traded June gold contract on the COMEX gold futures market ended 5.7 percent higher at $1,572.70 an ounce, the biggest gain since March 2009.
Gold futures have recorded three consecutive sessions of gains. Senate minority leader Charles schumer also expressed optimism that a fiscal stimulus package could be reached as the federal reserve unveiled unprecedented measures to boost the economy.
Separately, the SPDR Gold Trust, the world’s largest Gold exchange-traded fund, fell 1.5 percent to 908.19 tonnes on Friday.
Bob Haberkorn, market strategist at RJO Futures, said the expectation that the United States would provide more stimulus in addition to what the fed has already done is an important reason for gold to rally ahead.
Tai Wong, head of fundamental and precious metals derivatives trading at BMO, said: “the fed has launched its biggest cannon yet, bigger even than during the great financial crisis.”
In the wake of the fed’s action, Goldman Sachs is the latest bank to say it’s time to buy gold. Goldman Sachs notes that gold is close to an “inflection point” after the fed’s action and that it is time to follow the fed’s QE lead and buy gold.
The fed is desperate! Launch unlimited QE to save the economy
The federal reserve held another emergency meeting on Monday to announce a new, wide-ranging and open-ended effort to calm markets, including buying unlimited amounts of government and investment-grade corporate bonds, in an attempt to offset the “severe damage” caused to the economy by the coronavirus outbreak. These include new programs backed by student loans, credit card loans and U.S. government-backed loans to small businesses, as well as new programs to buy and lend to large corporations. Existing purchases of treasuries and mortgage-backed securities will be expanded as needed to “support the smooth functioning of markets and the effective transmission of monetary policy to broader financial conditions and the economy”.
The fed said on Monday it would roll out a series of programs aimed at helping markets function more effectively in a novel coronavirus crisis. Among them was a pledge to continue its asset purchase program to “support the smooth functioning of markets and the effective transmission of monetary policy to the broader financial environment and economy”.
This represents a possible new chapter in the fed’s money-printing, as the central bank has pledged to continue expanding its balance sheet if necessary, rather than committing to a fixed amount.
At the same time, the fed will make its first foray into corporate bonds, buying investment-grade securities in the primary and secondary markets and through exchange traded funds. There has been considerable volatility in us markets since the crisis intensified and market liquidity was reduced.
Other initiatives include an unspecified lending programme for ordinary businesses and the Term asset-backed Loan Facility, implemented during the financial crisis. A $300 billion “support the flow of credit” program will be made available to employers, consumers and businesses, as well as two agencies that provide credit to large employers.
The fed also said it would buy agency commercial mortgage-backed securities as part of an expansion in its asset purchases, known in the market as quantitative easing. The move represents the fed’s expansion into the real estate business for acquisitions.
“We are once again in a state of infinite easing,” Peter Boockvar, chief investment officer at Bleakley consulting group, said in a report.
Other measures include the issuance of asset-backed securities backed by student loans, auto loans, credit card loans, SBA loans, and certain other assets.
The move follows the fed’s announcement last week of a series of plans to ease liquidity in credit markets and short-term funding for bank operations. The fed said it would expand the money market facilities it announced last week to include a wider range of acceptable securities.
Monday’s announcement was the fed’s most aggressive market intervention to date.
The fed had previously announced it would buy $500bn of treasuries and $200bn of mortgage-backed securities. The new measure represents an open-ended commitment to quantitative easing.
Chris Rupkey, the chief financial economist at MUFG Union Bank, wrote: “fed policy is shifting into a higher gear to try to help support an economy that appears to be in free fall. Central Banks are changing their roles from lenders of last resort to buyers of last resort. Don’t ask them how much they’re going to buy. This is really quantitative easing without limits.”
Golden aftermarket outlook
Analysts at Blue Line Futures said this was not only the fed’s latest statement but could help reduce volatility and support gold prices in two ways. “It keeps financial markets liquid for the foreseeable future and reduces the volatility to which we have become accustomed, to which gold has fallen victim,” analysts said.
Adam Button, managing director of Forexlive.com, likened the move to an atomic bomb of monetary policy. “Today’s announcement is unprecedented in scale and scope. This is a complete misinterpretation of the function of the market.” Button said he was bullish on gold’s long-term prospects as markets react to the liquidity being pumped into global financial markets by governments and central Banks around the world.
Bannockburn Global Forex said the key to gold on the technical charts is whether the metal can close above its 200-day moving average, just above $1,500 an ounce. Gold hit a seven-year high of just over $1,700 an ounce on March 9. Others include some participants borrowing dollars to buy gold, which is treated as any other asset to liquidate as the bullion rally structure is unwound. Last week the metal appeared to be trying to build support around $1,450. Some technical indicators are leveling off, but not yet higher. A close above the 200-day moving average (around $1,503 / oz) will help to correct the tone. If the near-term bottom is in place, the first correction target will be around $1,544 and $1,575 an ounce.”
Comment analyst Geles Coghlan advised investors not to buy gold when the fear index is high. He points out that when the VIX rose to highs in 2008/09 and 2011, gold either traded in a narrow range or fell. Investors are selling everything for cash. So he recommends buying gold when the panic index drops. Conversely, the dollar is more likely to act as a safe haven when the fear index keeps rising. “When the fear index goes down, it goes to gold, when the fear index stays high, it goes to the dollar,” Coghlan said.
FXTM research analyst Lukman Otunuga wrote that risk aversion drove investors to the safety of gold on Monday, with the metal jumping above $1,560 an ounce at the time of publication. If gold closes above $1,545, it could move higher still. That should push gold back toward $1,600 in the medium term. If the dollar continues to rise, gold will fall back to $1, 500.