Gold extends gains on global monetary easing bets
· Gold prices rose for a second straight session on Tuesday, as expectations grew for monetary policy easing by major central banks to cushion the economic fallout from the fast-spreading coronavirus outbreak.
Spot gold climbed by 0.5% to $1,597.66 per ounce by 0236 GMT after a 0.4% gain on Monday. U.S. gold futures advanced 0.3% to $1,599.10.
· “Expectations that major central banks around the world are going to aggressively cut rates, which is the sentiment at the moment ... supporting gold,” said Jeffrey Halley, a senior market analyst at OANDA, adding that virus fears kept the metal supported.
Traders on Monday piled into bets that the U.S. Federal Reserve will deliver a big dose of stimulus starting this month amid growing concerns over the economic impact of the epidemic.
April Fed funds rate futures imply a 0.50 percentage point cut by the U.S. central bank.
The European Central Bank joined the chorus of central banks signalling readiness to deal with the economic effects of the outbreak.
Lower interest rates reduce the opportunity cost of holding non-yielding bullion and weigh on the dollar, making greenback-denominated gold cheaper for investors holding other currencies.
Expectations for aggressive monetary policy easing also supported global equities, with MSCI’s broadest index of Asia-Pacific shares outside Japan up 0.8%.
· Gold is moving along with equities as investors re-establish positions after liquidating them last week to meet margin calls in other assets, said OANDA’s Halley, adding that lower U.S. Treasury yields also supported the metal.
Benchmark U.S. 10-year Treasury yields hovered close to record lows touched in the previous session.
Meanwhile, data released on Monday showed U.S. factory manufacturing activity slowed last month as new orders contracted, reflecting worries about supply chain disruptions due to the virus outbreak and underscoring the need for an interest rate cut.
· Investors are waiting for the G7 conference call later in the day, where finance ministers and central bank governors will discuss measures to deal with the epidemic and its economic impact.
· Money managers began liquidating bullish gold positions during the most recent reporting week for data compiled by the Commodity Futures trading Commission, then the trend likely continued through the end of last week as prices tumbled.
The net-bullish position as of the Feb. 25 cutoff for the most recent CFTC data showed that speculators had begun moving out of gold, even though the metal had hit a seven-year high the day before. The price slide accelerated, with a sharp sell-off on Friday.
“We would expect to see a reduction in length in futures positions as funds looked for liquid assets to sell,” said a research note from BMO Capital Markets.
BMO and Commerzbank both pointed out that exchange-traded-fund holdings of gold actually rose on Friday despite the big price sell-off.
“Selling is likely to have taken place almost solely via the futures market, where Friday’s trading volume was nearly twice as high as this year’s average,” said Commerzbank analyst Daniel Briesemann. “There were close to 2,500 tons of gold traded on the futures market at the end of last week. Alongside selling designed to cover margin calls on other markets, technical selling is also likely to have dragged the price down after it fell below key technical thresholds.
“By contrast, the gold ETFs tracked by Bloomberg registered sizable inflows of a good 9 [metric] tons.”
“The gold price this morning has recovered again to around $1,600 following verbal interventions from the U.S. Federal Reserve and the Bank of Japan,” Briesemann said. “In a statement, Fed Chair [Jerome] Powell more or less announced a rate cut. Market participants are now speculating whether the Fed will wait until its next regular meeting in the middle of this month before lowering interest rates, and wondering how high the rate cut will be (25 or even 50 basis points).”
The CFTC’s “disaggregated” report showed that money managers trimmed their net-long position 230,846 futures contracts as of Feb. 25 from 238,546 the week before, which in turn had been a 22% increase from the prior week. During the most recent reporting week, the selling in the form of long liquidation (decline of 15,068 gross longs) outpaced the short covering (decline of 7,368 total shorts).
· Among other precious metals, palladium gained 1% to $2,548.36 per ounce, while platinum rose 1.5% to $872.95. Silver was up 1.3% at $16.94 per ounce.
Reference: Reuters , FX Street, Kitco
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