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Gold Tumbles 3%+; Safe Haven Not so Safe

· With world markets crashing and burning over the coronavirus crisis, the one asset that’s supposed to be protecting investors is letting them down.

· Gold tumbled more than 3% on Friday, joining the carnage in oil and on Wall Street, where the S&P 500 headed for its worst weekly slump since the financial crisis of 2008.

· Gold futures for April delivery on New York’s COMEX were down $57.50, or 3.5%, at $1,585 per ounce, falling off the key $1,600 berth. The last time a benchmark gold futures lost more in a day was in February 2018, when it slumped 4.6%. For the current week, the contract lost 3.7%. But for the month it managed to stay flat and in the positive.

· Spot gold, which tracks live trades in bullion, was at $1,585.55, down about 3.5% or more on both the day and week and about 0.3% lower on the month.

· Gold was a safe haven that many investors piled into over the past month as tremors over the coronavirus crisis slowly built. Earlier this week, the yellow metal hit seven-year highs just short of $1,700, raising hopes that it might have a shot later in the year at cracking the $1,900 record high.

Yet over the past four sessions, both gold futures and bullion descended into the red, before finally tumbling on Friday. Two reasons were cited by analysts: higher margin calls imposed on gold traders and selling by hedge funds to cover losses elsewhere.

· “Why are we not at $1,700 on gold? That’s because hedge funds do not want a disastrous February performance and need to sell winning gold positions to counter their losing stock holdings,” said Ed Moya at New York-based online trading platform OANDA.

· Others exited because of higher margin calls imposed on gold trades, which meant “they need cash to stay or they need to leave,” said George Gero, managing director at RBC Wealth Management.

Still, there were buillish hopes that after Friday’s shakeout, gold would attempt a return to $1,600.

· “Gold should start showing signs of life regardless of what stocks do over the next couple weeks,” Moya said. “If panic selling with stocks continues next week, gold will likely reassert its safe-haven status or if markets show signs of stabilizing, we could see the broad based commodity plunge ease.”

· The rout hammered other precious metals as well, with platinum declining as much as 6.1% and silver sliding 6.6%.

· “A lot of investors and traders are having to meet margin calls for other products, so they are selling what they can. That’s why it is hitting gold and the gold mining stocks,” said Michael Matousek, head trader at U.S. Global Investors.

“People are trying to sell whatever they can. It’s an overall sell-off.”

· The rapid spread of the coronavirus raised fears of a pandemic, with six countries reporting their first cases and the World Health Organization warning it could spread worldwide.

· The virus panic sent world share markets on course for their worst weekly fall since 2008, with almost $6 trillion wiped from their market value so far this week.

· “As sentiment has deteriorated, investors have closed some of their open positions in currencies, but most likely also in gold. Therefore, gold prices have failed to make new highs now that equity markets have aggressively sold off,” ABN Amro analyst Georgette Boele wrote in a note.

“If risk aversion were to result in a market panic, investors will find cash and very liquid assets attractive. They will probably liquidate gold investment positions.”

· In other precious metals, palladium dived 9% to $2,590.50 per ounce. The metal has shed about $390 from a record high of $2,875.50 on Thursday.

The auto catalyst metal was still on track to gain for the seventh consecutive month due to a sustained supply shortfall.

· Platinum shed 4.4% to $859.24, facing its worst weekly fall since 2011.

· Silver fell 6.2% to $16.60 an ounce, on track for its worst week since 2013.

Reference: Investing, CNBC