Spot gold was trading at $1, 537.80 an ounce on Wednesday. Gold surged sharply in the last session as the federal reserve stepped up its massive stimulus efforts, pushing it up nearly $90 since the day’s lows and briefly above $1,550 an ounce. Maintain the overall rebound momentum, but momentum temporarily.
COMEX April gold futures ended up $39.30, or 2.6%, at $1,525.80 an ounce, ending a five-session losing streak.
Despite a sharp rebound from session lows, gold is still down nearly 10 percent from last week’s seven-year high.
“There are a lot of fundamentals behind gold that are helping to drive it higher,” said Michael Matousek, chief trader at U.S. Global Investors. Plus, given the market declines of the last two days, you do see technical issues.”
“The fall in oil prices has also had an impact on gold, as it has led the Russian central bank to stop buying gold and may have triggered some selling,” Goldman Sachs analysts said in a report. In the short term, gold is likely to remain volatile as it tries to find a new equilibrium. This is a great opportunity for people to get into the gold market.”
The fed’s big killer! Gold has surged nearly $90 since the session low
The federal reserve announced on Tuesday that it would support the flow of credit to households and businesses by creating a facility to finance commercial paper. Financial markets were encouraged by the news, with the dollar index extending gains and hitting a session high of 99.84, while spot gold briefly traded above $1,550 an ounce, up nearly $90 since the session low. U.S. stock indexes rallied violently, with the NASDAQ up more than 5%, while European stocks and FTSE China A50 futures also climbed.
The federal reserve announced it would establish a commercial-paper financing facility to help companies struggling to get funding. The New York federal reserve announced that the fed would conduct additional overnight repo operations on Tuesday, up to $500 billion.
At the same time, the federal reserve says it will help companies that are struggling to get the short-term funding they need to operate.
In a highly anticipated move on Wall Street, the federal reserve announced a special credit facility to buy the corporate paper from issuers struggling to find buyers in the open market. Corporate notes involve unsecured short-term loans.
The fed said the commercial paper market had come under “considerable stress” in recent days as a result of the outbreak. It would support the flow of credit to households and businesses by establishing commercial paper financing mechanisms. The mechanism should eliminate market risk and improve the ability of companies to maintain employment and investment during outbreaks.
The fed said the Treasury would provide the fed with $10 billion in credit protection, which would come from the Treasury’s foreign exchange stabilization fund.
Gold bulls rallied in the wake of the fed’s stimulus announcement, hitting $1,550 an ounce, up nearly $90 since the day’s lows.
Bob Haberkorn, the senior market strategist at RJO Futures, said: “the fact that the fed is stepping in and they’re putting more liquidity into the market is helping gold go higher. Gold is starting to behave as it should.”
Mr. Trump is considering major stimulus measures to spend $1,000 each over two weeks
The Trump administration is discussing a plan that could involve as much as $1.2 trillion in spending to stem the economic impact of the new outbreak, including a direct payment of at least $1,000 to every American within two weeks. Treasury Secretary Steven mnuchin has proposed sending a $250 billion check by the end of April and sending a $500 billion check four weeks later if the U.S. remains in a state of emergency, according to people familiar with the matter. The payouts will be part of a stimulus package that Mr. Mnuchin is negotiating with congress. The Trump administration is said to have not yet decided how much it will payout, but hopes it will be more than $1,000 per person.
“Americans need cash right now, and the President wants to provide it right now; I mean, right now, in the next two weeks, that’s a big number. This is a very important time for the United States. We put forward a proposal that would inject $1 trillion into the economy.
The Trump administration has been discussing an $850 billion aid package but has since discussed spending as much as $1.2 trillion, according to people familiar with the discussions. The payout will be part of a stimulus package that Mr. Mnuchin is negotiating with congress; The trump administration is said to have not yet decided how much it will payout, but hopes it will be more than $1,000 per person.
Mr. Mnuchin also said the government intends to keep the stock market open and that the Treasury Department has pushed back the tax filing deadline by 90 days from April 15. The Senate will vote on Tuesday on an economic relief measure passed by the house of representatives after negotiations between Mr. Mnuchin and Ms. Pelosi last week and supported by Mr. Trump.
As the outbreak spread, the Morgan Stanley team said it now had a “baseline scenario” of a global recession, with global growth expected to slow to 0.9 percent this year.
Meanwhile, Goldman Sachs economists expect the economy to weaken to 1.25% growth. The s&p report said it expected growth of 1 percent to 1.5 percent.
However, both Morgan Stanley and Goldman Sachs forecast a rebound in the second half but warned that the risks of more significant economic pain remained.
With factories, schools, restaurants, and shops all closed around the world, if the outbreak lasts longer than expected, the outlook could be even dimmer or the economic damage more severe.
Golden aftermarket outlook
Commodity strategists at TDS said the short-term sell-off in gold was not only temporary but could lead to higher prices. If, as expected, the G7 central Banks and governments join forces in a stimulus package with historically low real/nominal interest rates, liquidity injections and income support programmes should reduce volatility and once again drive money into gold, pushing it to a new high of almost $1,800 an ounce.
RBC capital markets also see gold’s recent decline as a buying opportunity and expect the metal to continue to rise. “The gold rally was not and is not over,” said Christopher Looney, commodities strategist at the bank. On average, we expect gold prices to remain high into the second quarter, which means gold prices could meet or exceed our highest expectations in the first half of 2020, depending on how the economic crisis unfolds.”
Bill Baruch, president of Blue Line Futures, told Kitco News on Monday that gold could recover in the medium term and even hit record highs in the next 12 to 18 months. “There will be a bottom and it will be a huge buying opportunity. In fact, in my morning note to clients, I specifically noted that I am very confident that gold will set new records in the medium to long term. Once gold and other asset classes stabilize, you will be able to ride the wave.”
“We remain bullish on gold as a better-than-expected global economic shock could lead to greater risk aversion,” said analysts at Goldman Sachs. So while the bank cut its three-month and six-month forecasts by $100 to $1,600 and $1,650 respectively, analysts kept their 12-month forecasts at $1,800.
Capital Economics said it expected more downside risks before gold returns to 1600 this year. There is still room for commodities markets to bottom out, with tensions appearing uneased after the federal reserve’s emergency 100-point interest rate cut on Sunday, leading to profitable positions in precious metals still being liquidated to make up for deteriorating equity sentiment
Todd Horwitz, the chief market strategist at BubbaTrading.com, wrote that metals have really underperformed over the past few weeks. Despite the drop in gold prices, it is still looking for support and it is still reeling from a new downward trend. Gold has retreated from a high of $1,704 earlier this month and is now hovering around $1,540 an ounce. Gold appears to be falling sharply, following in the footsteps of silver and platinum. We are short and will keep this strategy for the time being.