On Tuesday (March 10) subsession, spot gold from the opening of the volatile decline, fell 1 percent on the day since the high fell about $19, the intraday low touched $1661.40 an ounce. For now, gold is trading around $1, 668.50 an ounce.
Gold prices fell sharply after breaching the $1,700 mark in early trading in Japan, largely on profit-taking as investors sold the metal to meet margin calls amid tumbling equity and energy markets, overshadowing safe-haven demand for the metal.
Mufg analyst Jonathan Butler said gold’s underperformance was a bit of a surprise — it did hit the $1,700 mark in early trading, but has since fallen back and appears to have sold everything. Part of the reason for the fall could be margin calls for other commodities or asset classes, which means clearing gold in response;
Oil prices suffered their biggest one-day fall since the gulf war in 1991 as Saudi Arabia and Russia said they would increase supplies amid a glut. At this time, gold is often seen as a hedge against oil-fueled inflation.
COMEX April gold futures closed up $3.30, or 0.2 percent, at $1,675.70 an ounce on Monday.
Gold rose as much as 1.7 percent in a volatile session after hitting its highest level since December 2012. However, analysts said the rally had led to profit-taking.
Investors sold stocks on fears of a new bout of pneumonia and war over oil prices. On Monday, the dow fell 2013.7 points, or 7.79%, to close at 23,851.02, its biggest one-day drop (7.87%) since Oct. 15, 2008. Meanwhile, the s&p 500 fell from 7.6% to 2,746.56. The NASDAQ composite index fell from 7.29% to 7,950.68.
In the last session, just minutes after the U.S. market opened, a massive sell-off triggered a key market circuit breaker. Monday’s sharp drop followed a volatile week for the s&p 500, which rose and fell more than 2.5% for four straight sessions.
A plunge in U.S. stocks triggered the first shutdown in 23 years as President Donald trump freaked out and said Monday he would discuss a potential payroll tax cut with the senate in an effort to boost an economy hit by health risks and shore up confidence.
Trump said at a news conference Tuesday that he would discuss a possible payroll tax cut with congress and ensure aid for hourly workers, CNN reported. White House officials said Mr. Trump had discussed with his team of advisers a stimulus package to blunt the economic impact of the new pneumonia virus.
Meanwhile, us Treasury yields rebounded after a sharp fall, with the entire yield curve falling below 0.7 percent on Monday. Tuesday’s rally in oil and standard & poor’s futures boosted risk appetite, pushing bond markets from Australia to Japan lower. The yield on the 10-year Treasury note jumped 15 basis points to 0.695 percent, the biggest rise since November 2016.
“The market is recovering from Monday’s overbuying, driving yields sharply higher,” said Souichi Takeyama, interest rate strategist at SMBC Nikko cordial.
Traders noted that the deterioration in liquidity also contributed to the volatility. Liquidity conditions are at their worst since 2016, according to Bloomberg’s U.S. government securities liquidity index.
Ole Hansen, the commodities strategist at Saxo Bank, said the market as a whole had not yet hit bottom, and with gold’s upside momentum so strong, it was hard to say how high it could go.
Mike McGlone, the senior commodities strategist at BI, said the combination of low bond yields and lower equity markets suggests energy and underlying financial prices are set to fall, with gold expected to hit $1,800 an ounce.
DailyFX analyst Rich Dvorak also thinks the drop in bond yields will push gold higher, to a record high above $1,900 an ounce.
As the new pneumonia epidemic continues to spread around the world, led by the federal reserve, a number of central Banks have taken action to cut interest rates, other major central Banks also began to act. Bank of Japan (BOJ) governor haruhiko kuroda noted that the new crown pneumonia outbreak, the market uncertainty has increased. The outbreak is expected to have an impact on consumer spending. For now, global markets are in turmoil and will continue to watch the outbreak’s impact on the economy and prices. Central Banks will not hesitate to take appropriate action if necessary.
Kuroda also said the outbreak had affected the Japanese economy, particularly with a drop in inbound tourism and a drop in department store sales. Efforts will continue to maintain stability in financial markets, but there will be no comment on currency market fluctuations. It must be recognized that the new crown pneumonia outbreak may have a major impact on the Japanese economy.
Taro aso, Japan’s finance minister, also said the government may need to consider additional measures if the outbreak of new pneumonia drags on. The government’s view of Japan’s economic recovery has not changed much.
Golden aftermarket outlook
As for gold’s next move, Harry Tchilinguirian, head of commodities research at BNP Paribas, said that with interest rates so low, now was “the best time to own some gold”.
Tchilinguirian said that while yields on TIPS are historically low, there is still room for further declines. Even after the fed’s emergency rate cut last week, BNP Paribas expects another half-point cut after its March 18 meeting. Gold will continue to attract interest from investors, driven by a continued accommodative monetary policy environment. With no opportunity cost, gold looks good.”
Tchilinguirian added that in the current low-interest-rate environment, he expects gold to rise to $1,700 – $1,725 an ounce. He added that while gold was on a strong uptrend, the market would be very sensitive to the daily sell-off inequities. The comments come as gold prices have retreated from their highs.
Tchilinguirian doesn’t expect gold to surge to $1,800, but it will move steadily higher. Investors who bought gold in June must have plenty of ammunition to offset equity losses. Gold has been a good hedge against falling share prices and investors are using this hedge to support their equity positions.”
Todd Horwitz, the chief market strategist at BubbaTrading.com, wrote that gold futures surged early in the week, trading as high as $1,704 in June. Buying is fast and intense. Stocks fell by their daily limit just before 9:30 a.m. Et, bonds were up more than 10 points, and the end of the world as we know it was imminent. Investors sell everything but gold and bonds. Crude oil prices fell more than $10 overnight.
The key to the move is a weakness in silver and platinum, which, despite earlier gains, has never matched gold’s strength. We see gold’s recent high as a temporary top and expect some sellers to emerge that could push gold back to $1,640 or lower. Consider this a classic correction in an overbought market. Once gold finds support, there should be some consolidation before heading higher again.