On Thursday, spot gold traded in a tight range after falling nearly 3 percent the previous day and is now hovering around $1,490, has been volatile in recent days.
Gold prices fell more than 3 percent at one point to close below $1,500 on Wednesday, suggesting that investors’ flight from liquidity will continue to overshadow the metal’s traditional safe-haven appeal as stocks took another big dive on worries about the economic impact of a new pneumonia pandemic.
Jeff Wright, executive vice President of GoldMining Inc., said there was’ panic selling of more liquid assets. ‘ Steven Mnuchin, America’s Treasury secretary, warned that without stimulus, unemployment could reach 20%, which could be “the tipping point for all asset classes I can see heading lower”.
He told MarketWatch, “gold may rebound to around $1,550, but still thinks it’s in the $1,500 – $1,600 range in the near term. In the longer term, once the panic subsides and the new normal takes its place, gold will have to go higher.”
U.S. benchmark stock indexes fell sharply Wednesday after recovering Tuesday. The intraday market fell as much as 7 percent, triggering a primary circuit breaker that halted trading in the us for 15 minutes.
By the close, the dow jones industrial average had given up its last gain since President Donald Trump took office in 2017, as the impact of a new coronavirus outbreak could hit economic activity.
Despite gold’s safe-haven status in recent weeks, sharp sell-offs in stocks and other riskier assets have tended to drag down prices.
As funds and other investors deleverage, analysts link the pressure to forced selling, which they believe is selling gold as well as other assets.
Commerzbank analyst Daniel Briesemann said in a note that the strong dollar rally could also be a factor.
The dollar hit a three-week high on a trade-weighted basis on Tuesday, coming under upward pressure as global investors rushed to buy dollars in markets outside the us.
A stronger dollar could be bad for dollar-denominated commodities, making them more expensive for users of other currencies. The dollar index rose above the 101 level on Wednesday, up more than 130 points.
The federal open market committee meeting scheduled for Wednesday was canceled because of restrictions on meetings during the coronavirus outbreak, but the fed has already cut its policy rate to near zero this week, restarted its bond-buying program and increased repo auctions to provide liquidity to short-term money markets.
Rising Treasury yields are also seen as a barrier to gold prices, Briesemann said. High yields increase the opportunity cost of holding non-yielding assets such as gold. The yield on the 10-year Treasury note rose 15.4 basis points to 1.12 percent
Fxempire analyst Christopher Lewis wrote that the gold market has been battered recently, but has been moving back and forth in the past few days, perhaps to show signs of stabilization above the 200-day moving average.
The 200-day average is a widely watched indicator. This usually defines the trend for many long-term traders, so it certainly attracts a lot of attention.
Lewis said if the market can break through $1,550 by the end of the day, it will likely continue to reach that high. Or if the market falls below $1,450, gold will fall sharply.
“At this point, the market looks like it’s making a long-term decision, so pay attention to these two levels because they can tell you where to go next,” he says.
‘Central Banks around the world are flooding the market with money, which in theory should be good for gold, but we’re far from an inflationary environment,’ Mr. Lewis said. Gold is probably safer than any other asset. All moves are equal, and until gold breaks that band, it will likely be a volatile market move in the short term. That said, there should be plenty of opportunities for short-term iteration.
Overall, says Lewis, this is a market that will continue to see a lot of noise, because the headlines will certainly be highly influential.