Spot gold was trading at $1,492.40 an ounce in Asian trading on Monday. Intraday gold prices are under pressure from the bottom of the consolidation, the current trend is more struggling.
The precious metals market has been turned upside down over the past week, with spot gold trading sharply higher and lower and the bulls and bears fighting each other — gold prices fell more than $100 on Monday before trading wildly in a range of $1,466 to $1,534. After fluctuating more than $70 on each of the first three days of the week, gold rebounded higher on Friday as the dollar retreated, returning to around the $1,500 mark and moving more than $60 a day.
As the global outbreak of COVID 19 intensified, U.S. stock futures were pointing to a daily opening limit of losses, while Asian stocks were mostly lower. U.S. stock futures were set to open with a direct loss by the daily limit, with the s&p 500 hitting its lowest level since late November 2016. The Australian stock market opened down more than 8 percent, the Australian composite index hit its lowest level since December 2012; The nikkei 225 is hovering near a three-year low; The Shanghai composite index opened down more than 2.5 percent, close to its lowest level in more than a year hit last week; At one point, South Korean stocks were down more than 6 percent, close to a near 10-year low hit last week; Singapore’s straits index fell as much as 8%, its lowest since June 2009. New Zealand’s NZX50 index fell more than 10 percent at one point, also hitting a near three-year low.
The outbreak has brought more and more parts of the world to a standstill, dealing a severe blow to economic activity and sparking panic in financial markets. To support the economy and calm financial markets, governments have pumped unprecedented amounts of fiscal stimulus into their economies, while central Banks, led by the federal reserve, have cut interest rates, bought bonds and flooded markets with liquidity to ease the strain on the dollar. The fed could continue to act without warning.
A novel coronavirus will plunge the United States into a deeper than the expected recession, with second-quarter gross domestic product expected to fall by a record more than 30 percent, big bank Morgan Stanley said. (a week ago, the bank was expecting a 4 percent drop).
ABN Amro said it expects global financial markets to remain in a risk-off mode in the coming weeks and months, with the dollar strengthening and gold prices weakening. The bank expects gold to fall to $1,300 an ounce in the second quarter.
The key uncertainty is whether the liquidity squeeze — the hunt for cash — will find some stability, TD Securities commodity strategist Daniel Ghali told Kitco News yesterday. Demand for the dollar has surged in the past few weeks, prompting many investors to sell gold. This is driven by companies’ need for cash to pay their employees and fund managers’ need for dollars as margin requirements increase.”
Ghali also said it was not clear whether the liquidity squeeze was over, but there were some positive signs, especially after all the measures taken by the fed. On the downside, we’re going to focus on $1,440 an ounce, and on the upside, we’re going to focus on $1,515 an ounce.
‘gold is still showing a safe-haven quality, showing better performance than other assets,’ said John Sharma, an economist at National Australia Bank. But as the global outbreak continues and fears of a recession grow, investors are still looking for cash, selling gold to cover the margin requirements.
“I’m bullish on the next week,” said Colin Cieszynski, chief market strategist at SIA Wealth Management. Gold has been hit by a recent flood of capital into U.S. dollar cash, which has also pushed down other currencies. “I think if the dollar hasn’t peaked yet and it’s likely to peak in the next few weeks, the pendulum could start to come back down and take some of the pressure off gold.”
KC Chang, the precious metals analyst at IHS Markit, said gold could even fall to $1,300 an ounce as the outbreak continues to weigh on the global economy. It is expected to fall sharply in the second half of the year as investors continue to hoard cash.
Stephen Innes, the chief market strategist at AxiCorp, said the gold market was reacting to the financial market moves and the emergence of various stimulus measures. Demand for liquidity has kept the gold market volatile
The WGC believes that a slowdown in global economic growth will affect consumer demand for gold, and gold volatility will remain high, but gold will still be supported by safe-haven assets in the context of significant risks across the market, negative interest rates spreading around the world and central Banks in QE.
Schaeffer’s Investment Research says current fiscal and monetary policies are being compared to the 2008 financial crisis when holding gold and mining stocks was a big gain. Increased U.S. government spending combined with stimulus means higher gold prices and a weaker dollar. If this trend continues, and QE and stimulus continue, the gold market will be pushed higher.
Jim Wyckoff, senior technical analyst at Kitco, expects gold prices to continue to rise as global equity and financial markets appear to be stabilizing and buyers “become more confident in many battered markets.”