Gold rebounds as recent plunge opens door for bargain hunters
· Gold jumped on Tuesday as a five-session decline in the bullion market led bargain hunters out in force, with Federal Reserve’s announcement to boost lending soothing market fears over a crunch in liquidity.
· Precious metals were caught up in a broader market sell-off as coronavirus continued to spread rapidly, with some investors selling the metals for cash and to cover margin calls across other markets.
· Spot gold was up 0.7% to $1,524.81 per ounce at 01:37 p.m. EDT (1737 GMT). U.S. gold futures settled up 2.6% to $1,525.80.
· Gold, the dollar and global equity markets rose on Tuesday after the Federal Reserve said it would buy short-term corporate debt directly from companies to help relieve credit markets under strain from the economic impact of the coronavirus epidemic.
The renewal of the financial crisis-era Commercial Paper Funding Facility, first used in 2008, will provide a backstop to that market, a key funding source for a range of U.S. businesses that have seen liquidity dry up.
The Fed said the Treasury would provide $10 billion of credit protection to the central bank’s commercial paper operation.
· “The fact that the Fed is stepping in, they are putting out more liquidity in the market, has helped gold to trade higher. Gold is starting to act like how it should act,” said Bob Haberkorn, senior market strategist at RJO Futures.
· Safe-haven gold erased earlier losses and jumped over 2% after the Fed said it would relaunch financial crisis-era purchases of short-term corporate debt to thaw credit markets strained by the coronavirus pandemic.
· “Gold has got a lot of fundamental factors behind it to help drive it higher. Plus, you do have the technical aspect of it given the drawdown we had over the past two days,” said Michael Matousek, head trader at U.S. Global Investors.
“It is a great opportunity for people to enter into the gold market.”
· Gold has shed nearly 10% from over seven-year highs hit last week. Bullion slumped as much as 5.1% to its lowest since November 2019 and broke below its 200-day moving average on Monday.
· “Gold was also hurt by the fall in oil prices, as it brought Russia’s Central Bank purchases to a halt and could possibly trigger some selling,” Goldman Sachs analysts said in a note.
“In the near term, the gold price is likely to remain volatile as it tries to find a new equilibrium.”
· Limiting gold’s advance, the dollar jumped more than 1.6% to a three-week high.
· Palladium eased 0.8% to $1,604.13, having plummeted as much as 18% in the previous session. Platinum slipped 0.8% to $657.66 per ounce, having posted its biggest one-day percentage decline ever on Monday.
· Silver fell 3% to $12.51, after touching its lowest since 2009 in the last session.
Reference: Reuters
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