Gold declines as virus panic spurs sell off

Gold declined as investors rush to raise cash to cover losses in other markets amid a surge in volatility across assets, with global leaders striking a pessimistic tone over the likely economic impact of the coronavirus outbreak.

In a sign of the wild swings seen in markets during the health crisis, US equity futures reached their limit-up following their biggest drop since 1987. President Donald Trump has warned of a possible recession and that the economic disruption from the virus could last into summer. Asia-Pacific shares ranged from a further decline in South Korea to gains elsewhere.

A wave of global central bank stimulus and a pledge from the leaders of the Group of Seven to do whatever is necessary to ensure a globally coordinated response has failed to quell investor concerns about the economic hit from the coronavirus.

Precious metals have been caught up in the wave of heavy selling across markets, Australia & New Zealand Banking Group senior commodity strategist Daniel Hynes said in a note. “US equity markets suffered another sharp correction, which saw investors lose confidence in the ability of government and central banks to combat the economic effects of the spread of the coronavirus.”

Spot gold dropped as much as 1.9% to $1 485.91 an ounce and was at $1 495.82 by 10:48 a.m. in Singapore. Prices are down 12% from a seven-year high reached a week ago and tumbled the most since 1983 last week.

“Gold declines remain linked to investors’ need for cash,” Stephen Innes, chief market strategist at AxiCorp, said in a report. “A constant question on every bullion investor’s mind is why is gold retreating when uncertainty and risk-off sentiment is rising? Gold’s recent declines are chalked up to margin-related selling as equities fell.”

In addition, the need for capital preservation is becoming a priority in investors’ decision making, Innes said. “Holders of gold, whether it be physical, paper, or even scrap, are liquidating to boost capital levels. But this may only go on for as long as equities remain so weak.”

Silver fell 1.2% after a 12% loss Monday. Palladium gained more than 6% after plunging 12% on Monday, while platinum advanced 0.9% after falling the most on record the previous day.

More and more countries are imposing travel restrictions and have closed schools, restaurants and canceled sporting events as deaths from the virus exceeds 7 000 globally. 

© 2020 Bloomberg L.P.