Spot gold traded at $1,603.80 an ounce in Asian trading on Thursday. Gold prices have accelerated sharply in recent days, falling as much as $15 since the day’s high. At one point, it fell below the 1, 600 marks to $1, 598.50 an ounce.
Gold opened at $1,631.10 an ounce, touched $1,596.40 and rose as high as $1,641.50 before closing down $13.44, or 0.83%, at $1,615.16.
Comex gold futures for April delivery fell $27.40, or about 1.7%, to $1,633.40 an ounce after rising 6% on Tuesday.
Some commodity analysts attributed the drop to gold’s rally drying up after two days of strong gains. The U.S. Congress is close to passing a $2 trillion rescue plan to help ease the economic pain of the coronavirus outbreak.
“Gold will ultimately benefit from all this stimulus and a weaker dollar, but now it’s all about equities,” Edward Moya, senior market analyst at Oanda, said in the latest market report. U.S. benchmark stock indexes rose Wednesday as investors were optimistic that Congress would pass a bailout plan.
“Gold is slowing after two impressive rallies,” wrote Carlo Alberto De Casa, chief analyst at ActivTrades. Risk appetite has largely dominated the market over the past 48 hours, but it has not supported gold and investors may be shifting some of their liquidity back into equities.”
Eli Tesfaye, the precious metals strategist at RJO Futures in Chicago, said some of the money must flow back into the gold market as the fed releases unprecedented liquidity. U.S. stocks and commodities took a break from their declines, preventing investors from selling gold to cover losses elsewhere, allowing gold to return to its safe-haven status and resume its upward trend.
Stephen Innes, chief market strategist at financial services firm AxiCorp, said in a note that another factor supporting the gold market was the tight spot supply of gold due to the closure of three of the world’s largest gold refineries in Switzerland due to the outbreak.
Former federal reserve chairman: the us economy will have a “very severe” recession followed by a “fairly rapid” rebound
In an interview with CNBC on Wednesday, former fed chairman Ben Bernanke expressed optimism about the longer-term state of the U.S. economy, predicting that while the country is facing a deep recession, it won’t last long.
“There could be a very deep, short recession in the next quarter, and I hope it will be short because of course, everything is stagnating. If there is not too much damage to labor and business during the blockade, we can see a fairly quick rebound no matter how long it lasts.”
During the 2008 financial crisis, Bernanke led the fed’s efforts to rescue the economy. He was the first Fed chairman to cut the benchmark interest rate to near zero, and the fed, led by Ben Bernanke, has put in place a series of reactivated programs to deal with the current crisis.
Although Mr. Bernanke steered the fed through the financial crisis and the great recession that followed and is widely regarded as an authority on the response to the depression, he said there were only minor similarities between the two periods.
“This is very different from the great depression, which was caused by human problems, monetary and financial shocks. There are some of the same feelings, some of the panic feelings, some of the wave feelings that you’re talking about. It was more like a big snowstorm or a natural disaster than a typical 1930s depression.”
In fact, Bernanke said, the situation is almost the opposite of the financial crisis, when problems in the banking system affected the broader economy. This time, the broader economic problems caused by the coronavirus are affecting Banks.
Golden aftermarket outlook
“The significant downside risk to gold remains the possibility of another major sell-off inequities, especially after the previous session’s rally,” OANDA analyst Craig Erlam said in a note.
“We continue to see a good outlook for gold as the economic impact of the COVID 19 crisis should boost safe-haven demand,” said Julius Baer analyst Carsten Menke.
Naeem Aslam, chief market analyst at wisdom exchange, said the long-term value of fiat money would be further eroded as central Banks around the world responded to the outbreak with aggressive monetary easing, while gold’s store of value could strengthen. Moreover, in the third and fourth quarters of this year, us stocks typically fall as the us election campaign heats up, driving gold prices sharply higher. Next, as the epidemic improves, the 2020 gold peak could come in November.
Mark Mobius, founder of Mobius Capital Partners, pointed out that the recent sell-off in gold, as well as risky assets such as equities and oil, was driven by pure panic as investors sold everything because of the spread of public health events. But in fact, I think now is a good time to add gold.
Alexander kozul-wright, the commodities analyst at Capital Economics, said: “the possibility of a deflationary cycle poses a significant downside risk to our forecasts, with fears that the current crisis could lead to deflation posing a greater threat to the gold market.” According to capital economics, this risk is not yet fully established but could lead to lower demand for gold in the future. Capital economics has a year-end gold forecast of $1,600 an ounce and expects prices to move largely sideways throughout the year.
Analysts at Dailyfx said it is premature to assume gold has started a major new bull run and should continue to be patient with market conditions. At the same time, due to the volatile gold prices and abnormal quotes, point spread, and other problems, before they return to normal, should try to avoid gold trading.
CMC Markets analyst Margaret Yang Yan said the performance of the gold market has nothing to do with fundamentals, it has decoupled from its safe-haven function, and the market is in an unprecedented position. “Investor sentiment is still very cautious and ‘cash is king’ is still the mantra, so volatility will increase.”
Canaccord Genuity Capital Markets reports that the fed’s move this time is more aggressive than during the 2008 financial crisis. But Carey MacRury, an analyst at the firm, said it was too early to call a bottom in the gold market.