· Gold prices fell on Monday as a flight to cash to cover losses in equities overshadowed measures by global central banks to contain the economic fallout from the coronavirus epidemic.
Spot gold was down 0.3% at $1,612.60 per ounce by 0635 GMT after Friday's 0.7% drop. U.S. gold futures fell
0.6% to $1,643.70 per ounce.
· "The worse the situation gets the stronger the link between stocks and gold, because if we see further economic deterioration that will drag gold down with the share markets," said Michael McCarthy, chief strategist at CMC Markets.
· Asian shares slid and oil prices took another tumble on worries that shutdowns related to the outbreak could last for months.
· The pandemic has already driven the global economy into recession and countries must respond with "very massive" spending to avoid a cascade of bankruptcies and emerging market debt defaults, the head of the International Monetary Fund warned on Friday.
· Central banks have started all-out efforts to bolster activity with rate cuts and massive asset-buying campaigns, with China, Singapore and New Zealand being the latest additions.
The U.S. House of Representatives on Friday approved a $2.2 trillion aid package — the largest in history — to help cope with the virus-inflicted economic downturn.
The weekend brought more bad news on the outbreak front, with the global death toll reaching nearly 34,000. Deaths in the United States crossed 2,400 and infected cases rose beyond 141,000.
· Weighing on gold was a halt in the dollar's slide that came with a broader risk-averse mood, after the greenback surged amid a scramble for cash and then subsided as central banks launched unprecedented liquidity measures.
· "The U.S. fiscal stimulus package is positive for the dollar and probably an element of that is coming through the moment. There is negative correlation between the dollar index and gold prices," IG Markets analyst Kyle Rodda said.
· Holdings in the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, rose 1.2% to 964.66 tonnes on
Friday.
"I wouldn't say gold's status as safe-haven is over, but if things continue to deteriorate economically it could become a funding source and that will offset its safe haven status," said CMC Markets' McCarthy.
· Palladium fell 0.7% to $2,253.74 per ounce, platinum slipped 3.5% to $715.36, while silver slid 4.2% to $13.86.
· Seventy-one percent of the Wall Street and Main Street respondents in the weekly Kitco gold price survey look for the precious metal to build on its gains next week.
Analysts pointed out that the metal posted its biggest weekly gain since 2008, with the biggest impetus an early-week announcement of open-ended quantitative easing and other programs from the Federal Reserve to prop up the economy and markets amid the COVID-19 outbreak.
“I think we are going to be up next week after we see if the vote [on stimulus in the U.S. House of Representatives] is passed and after we see if the stimulus that is promised by the G20 [Group of 20 nations] is in effect also, said George Gero, managing director with RBC Wealth Management.
Charlie Nedoss, senior market strategist with LaSalle Futures Group, looks for gold to rise some more now that the June dollar index has fallen enough to test the 20-day moving average near 98.95. The dollar has bounced from its low, and some late-week profit-taking has occurred in gold, he said.
“But longer term, I think gold is going to continue to push higher,” Nedoss said. Technically, he added, the area around $1,600 an ounce should offer good support for gold as both a psychological level and since it’s also the area around the 20- and 50-day moving averages.
Kevin Grady, president of Phoenix Futures and Options LLC, also described himself as bullish for next week despite Friday’s pullback.
“I believe the sell-off today is attributed to the both the options expiration last night and the fact that the April contract will be rolling into June by Monday,” Grady said. “At this time, longs have to decide whether to roll their existing position or to liquidate. I think that we are seeing April liquidation today. Gold margins were raised from $7,000 to $8,350 on March 25th. This could be a big factor in their decision.”
Jim Wyckoff, senior technical analyst with Kitco, also said higher.
“Charts are friendly and investors/traders are now confident about buying markets, as opposed to standing on the sidelines and hoarding cash amid recent higher anxiety,” Wyckoff said.
Adam Button, managing director of ForexLive, also looks for gains in gold now that investors aren’t having to sell to raise cash instead, as was the case earlier this month when equities were in a free fall.
“The liquidation phase of this crisis is over, and the focus is shifting to monetary debasement and economic uncertainty,” Button said.
Reference: Reuters,Kitco
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