On Monday (March 2) Asian morning trading, financial markets saw sharp volatility, with gold in particular volatile. Spot gold jumped in Asia, briefly above $1, 590 an ounce, but quickly fell as low as $1, 575. Now, however, gold is rising again, back above the $1, 600 mark. Some analysts pointed to a good entry point for gold after Friday’s sell-off. Risk aversion is still likely to rise as a new outbreak intensifies overseas and central Banks, including the us federal reserve, are likely to cut interest rates aggressively, all of which are bullish for gold’s long-term prospects.
The wild swings in gold prices have just returned to the 1600 mark
Gold hit a high of $1,592.90 an ounce in early trading, but fell sharply in the short term, hitting a low of $1,575.24.
However, gold has just pulled up sharply in the short term, back above the $1, 600 / oz mark and hitting a high of $1, 604.32 / oz.
Gold prices plunged on Friday, dropping more than $80 at most from their session high. On Friday, gold briefly broke through $1,570 an ounce to $1,562.73, its lowest level since February 12, before ending the week down at $1,586.18 on the long negative line.
Us stocks have suffered their worst week in more than a decade as the global outbreak of pneumonia continues to spread and market fears grow. U.S. stocks had their worst week since the 2008 financial crisis, with the dow, s&p 500 and nasdaq all Posting their biggest weekly losses since October 2008. Last week, the s&p 500 fell 11.49 percent, the dow Jones industrial average fell 12.36 percent and the nasdaq fell 10.54 percent.
Andrew Hunter, us economist at Capital Economics, told Kitco News on Friday: “the sell-off was driven by fears of a global spread of the coronavirus.”
Analysts say investors sell gold to meet margin calls when stocks are too risky and times are too tough.
‘when there are times like this, gold usually sells with the market to generate liquidity and cover margin,’ said Ryan McKay, commodity strategist at TD Securities.
“Some sellers think they need to hold cash now to meet margin calls elsewhere,” said George Gero, managing director at RBC Wealth Management.
Gold fell sharply on Friday, falling below $1,635.20 an ounce, hitting a previously expected bearish target of $1,601.20 and then falling further below that level, sending gold below intraday bullish channel support, which it is currently trading below, according to an article by Economies.com.
Gold is expected to fall further in the coming months, with the next major target at $1,547.50 an ounce, according to Economies.com. A rebound above $1,601.20 an ounce would push gold back into the main bullish trend.
The main driver this week remains the outbreak of the coronavirus, especially in the headlines related to the spread of the virus in Europe and North America.
The world health organization on Friday raised its coronavirus threat assessment around the world to “very high” levels.
“We have now raised our assessment of the risk of transmission and impact of the novel coronavirus to a very high global level,” said who director-general Tedros Adhanom Ghebreyesus.
Gold prices drop after a good entry point? Goldman sachs expects the fed to cut interest rates before its meeting this month
Gold prices fell sharply on Friday as investors took profits to cover losses in other markets, RBC said. Gold could be a good buy point right now as concerns about the spread of a new outbreak of pneumonia peak.
In the longer term, the outlook for gold remains very positive as markets expect the world’s major central Banks to begin a new cycle of massive easing as they deal with the effects of the coronavirus.
“This virus may prompt the central bank to act more aggressively so that we can cut rates further,” McKay said. Over the long term, gold is attractive as a hedge against real interest rates, which should be very low or negative.”
“We are likely to see some easing in the coming months,” Hunter said.
Hunter said strong expectations of further U.S. interest rate cuts could also force the fed to cut rates. “If the overall situation stays the same, let alone gets worse, and the fed doesn’t follow suit and cut rates, then there could be a pretty nasty reaction,” he said.
Goldman sachs economists expect the fed to cut rates sharply, perhaps before its next scheduled meeting in two weeks, calling Friday’s unscheduled statement by fed chairman colin Powell a clear signal.
As U.S. stocks fell for a seventh straight day, fed chairman Jerome Powell said Friday the central bank was monitoring the risks posed to the U.S. economy by the new coronavirus and pledged to act if necessary.
“The fundamentals of the U.S. economy remain strong,” he said. However, coronaviruses pose an evolving risk to economic activity. The fed is closely monitoring developments and their impact on the economic outlook. We will use our tools to take appropriate action to support the economy.”
Markets have been calling for the fed to cut rates, but Mr Powell’s statement offered no assurances. The FOMC is currently pricing in a cut of at least 25 basis points at its march meeting and expects to cut rates by a total of 100 basis points by the end of the year.
Goldman sachs said Mr Powell’s speech “strongly implied a rate cut at the March 17-18 FOMC meeting, even before that”.
Goldman sachs expects the fed to cut rates by 50 basis points by March 18, followed by another 50 basis points in the second quarter, for a total of 100 basis points.
Traders in money markets are beginning to bet that the fed may be forced to cut interest rates urgently if the outbreak worsens significantly.
Bank of America economists now expect the fed to cut interest rates by 50 basis points at its march meeting to stem market panic and support economic growth. Whether to make an emergency rate cut before the meeting will depend on the extent of market failure. Bank of America is confident that the fed will respond to recent market performance. The only issue at issue is the timing and scale of the fed’s actions.
‘we believe a 10% decline in the s&p 500 will prompt the fed to take decisive action by cutting interest rates and possibly even increasing its asset purchase program,’ Alain Bokobza, head of global asset allocation at Societe Generale, said in a note to clients.
The us election
Another factor that could push gold higher is the us presidential election. On March 3, the United States will usher in “super Tuesday,” when 14 states hold primary elections. There will also be 16 democratic presidential primaries, the outcome of which will largely determine who gets the nomination. Democratic candidate Bernie sanders is likely to win.
“Politically, we are ready for super Tuesday,” said Chris Weston, head of research at Pepperstone. “there are high expectations that Bernie sanders will do well here — gold is a clear hedge against political anxiety.”
Former vice President Joe biden has a commanding lead in the south Carolina democratic primary with a crucial victory that could reverse a losing streak and lead to super Tuesday, when 14 states hold primaries at the same time, according to exit estimates from Saturday’s polls.
The rivalry between Mr. Biden and Mr Sanders has been used by us public opinion to symbolise the battle of the Democratic Party’s “establishment” and “radicals”.
In South Carolina, meanwhile, African-American voters make up about half the state’s population. The primary is seen as a real test of whether candidates can appeal to African-American voters.
Mr. Sanders still holds a lead in California and Texas, the two big voting states, according to multiple polls. Biden also faces a challenge from former New York mayor Michael Bloomberg.