· Gold prices slipped on Wednesday as a stronger dollar and dash for cash following a historic rout in U.S. crude oil futures eclipsed support from safe-haven buying.
Spot gold eased 0.2% to $1,682.35 per ounce by 0623 GMT, after touching a near two-week low on Tuesday as the oil rout triggered a panic sell-off in wider markets, fuelling a rush for liquidity.
U.S. gold futures rose 1% to $1,704.10.
· “There is a tussle between safe-haven buying and the need for cash,” said Cameron Alexander, an analyst with Refinitiv-owned metals consultancy GFMS, adding that a stronger dollar also weighed on bullion.
· Traders will move from riskier assets to safe havens if stocks drop, he said, adding that investors were also hoarding cash to protect themselves from another sell-off in equities.
Against key rivals, the dollar hovered near a two-week high scaled on Tuesday.
· Asian share markets were on the defensive as the floor fell out from under crude prices, exposing the deep economic damage from the coronavirus pandemic.
· Oil prices slumped again on Wednesday, with Brent falling to the lowest since 1999, as the market continues to be plagued by a mounting supply glut and a virus-led demand collapse. U.S. crude futures fell into negative territory for the first time ever on Monday.
· Gold may come under pressure in the longer term as it is used as a hedge against inflation and falling crude prices tend to rise deflationary pressures in the market, analysts said.
However, massive monetary and fiscal stimulus measures by global central banks, especially the U.S. Federal Reserve, and governments will keep gold supported, analysts added.
· Gold tends to benefit from widespread stimulus measures from central banks, as it is often seen as a hedge against inflation and currency debasement.
· The U.S. Senate on Tuesday unanimously approved $484 billion in fresh relief for the world’s largest economy.
· On the technical front, spot gold may revisit its Tuesday low of $1,659.68 per ounce, as suggested by its wave pattern, according to Reuters market analyst Wang Tao.
Reflecting investors’ appetite for gold, holdings in the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, rose 0.4% to 1,033.39 tonnes on Tuesday.
· Among other precious metals, palladium rose 2.6% to $1,972.57 per ounce, having touched a near one-month low in the previous session.
· Platinum gained 0.4% to $749.27 per ounce, while silver fell 0.8% to $14.80.
· Analysts are all over the board when it comes to their assessment of gold pricing in the future. They vary from Bank of America’s call for “$3000 gold in the next 18 months”, and TD securities forecasting that gold will “rise to $1900 per ounce in the next three months”. Two independent analysts at capital economics predicting that gold will hit $1600 partially due to deflationary pressures.
· Gold To Touch $2000
As for gold, the precious metal remains an attractive choice among investors. The chances are higher for the equity markets to revisit the COVID-19 low. In fact, there will be no surprise if the prices fall further by another 10 percent.
Earnings are uniformly weak, and their future outlook is weaker. The earnings season for the next quarter is likely to be even rotten, and the economic numbers aren’t going to be better any time soon as well.
I believe that it is likely that gold prices will continue its journey towards the $2000 mark, and it is only a matter of time before we see that mark.
Reference: Reuters, FX Street
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