· Gold rose more than 1% on Monday, recouping losses from a steep slide in the previous session, amid the fast-spreading coronavirus and hopes for a rate cut by the U.S. Fed.
Spot gold gained 0.9% to $1,599.15 per ounce as of 0401 GMT, having risen over 1% earlier in the session. U.S. gold futures rose 2.2% to $1,601.20.
· Gold plunged over 4.5% on Friday, with precious metals joining a broader market selloff as investors liquidated positions to meet margin calls in other assets.
· “On Friday, the U.S. Federal Reserve board hinted they’re going to be dropping interest rates and that’s a great thing for gold right off the bat,” said Stephen Innes, chief market strategist at financial services firm AxiCorp.
· Fed Chair Jerome Powell said that while the U.S. economy remained strong, the coronavirus “posed an evolving risk” and the central bank stood ready to take action if needed.
Lower interest rates reduce the opportunity cost of holding non-yielding bullion.
The Fed fund futures showed that traders expect a 75 basis point rate cut by the U.S. central bank in its March monetary policy meeting.
“The dollar is weaker, the euro strengthened, and this (suggests) gold will go up,” Innes said, adding the negative correlation between the U.S. currency and the yellow metal has materialized again since the dollar’s safe-haven appeal has faded.
Expectations for a rate cut also supported other safe havens, with the benchmark U.S. 10-year Treasury yields falling to a record low and the Japanese yen rising to its highest since October.
· World stocks fell further as investors were rattled as weekend data from China raised fears of a global recession.
· Factory activity in China contracted at the fastest pace ever in February, even worse than during the global financial crisis, data showed on Saturday, highlighting the damage from the outbreak.
· Other metals also regained some ground following Friday’s free fall, with palladium rising 1.7% to $2,638.21 per ounce after shedding as much as 13% at one point — its biggest one-day percentage decline since the 2008 financial crisis — in the last session.
· Platinum gained 1.6% to $877.52, while silver rose 1.8% to $16.95, after both metals fell to their lowest in about six months in the previous session.
· Gold pierces $1,600 with eyes on coronavirus headlines
Gold prices take the bids to an intra-day high near $1,595 during the Asian session on Monday. With that, the bullion recovers Friday’s losses from the lowest since February 12, 2020. Despite its run to the multi-month top during February, the safe-haven recently witnessed pullback as magnified risk-aversion due to coronavirus outbreak pushed traders off from commodities
Technical Analysis
Buyers still need to cross $1,625 comprising lows marked during February25/26 to aim for the previous month high surrounding $1,690. On the downside, an ascending trend line from mid-January around $1,560 acts as the short-term key support.
· Gold Price Analysis: Off session highs, inverted hammer on 1H
Gold has pulled back to $1,594 per Oz, having hit a session high of $1,606 at 01:25 GMT.
The pullback in the safe-haven metal could be associated with the risk recovery in the equity markets and could be extended further, as bearish signs have emerged on the hourly (1H) chart.
To start with the 50-hour and 200-hour averages have produced a bearish crossover. The previous hourly candle took shape of an inverted bearish hammer. That candle suggests the bounce from Friday's low of $1,563 has ended.
The metal is also looking heavy on the daily and weekly charts. For instance, the 5- and 10-day averages have produced a bear cross and the metal created a big bearish outside candle last week, signaling buyer exhaustion.
So, the 50-day average support at $1,567 could come into play on Monday. The bearish case would weaken if prices find acceptance above $1,606 (the high of the 1H hammer candle).
· Participants in the weekly Kitco gold survey haven't given up on the precious metal despite Friday's sharp sell-off.
Main Street remains solidly bullish. And while Wall Street was somewhat mixed, the largest bloc of voters called for a rebound in prices.
"I remain bullish for next week in gold," said Kevin Grady, president of Phoenix Futures and Options. "The news about the coronavirus continues to worsen, so I think gold will remain volatile yet firm. The interesting thing to note is that the flight to quality remains steady in bonds but intermittent in gold."
Richard Baker, editor of the Eureka Miner’s Report, explained that profit-taking, forced long liquidation and low consumer demand in China likely all played a part in Comex gold retreating over the last week. But he looks for a comeback.
"Given the mounting uncertainty surrounding the impact this illness [coronavirus] will have on the U.S. economy and the world, I believe it likely that gold will recover lost ground next week to the $1,650 level...and to $1,800 per ounce in the weeks to come," Baker said.
Adrian Day, chairman and chief executive officer of Adrian Day Asset Management, also said higher since "gold should act well during market instability."
Others fear further weakness.
"Momentum is to the downside," said Charlie Nedoss, senior market strategist with LaSalle Futures Group. He pointed out that the metal has now fallen below $1,621 area, which is the 50% retracement of the prior rise from the Feb. 5 low of $1,551.10 an ounce to Monday's high of $1,691.70.
Reference: Reuters , FX Street, Kitco
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