JOHANNESBURG – Gold extended losses after its worst week in almost four decades, with investors “selling whatever they can” as the widening economic impact of the coronavirus spurred panic across markets.
The metal tumbled below $1,500 an ounce before paring declines as market sentiment soured even after further emergency moves by the Federal Reserve. U.S. equities slid in a sign investors have lost confidence in easing policy as way to combat the economic effects of the spread of the coronavirus. Bullion was pummeled as investors sold the metal to raise cash and cover losses in other markets.
“The markets are in panic mode,” Alexander Zumpfe, a trader at Heraeus Metals Germany, said in an email. “The interest rate cut by the U.S. Federal Reserve has not changed this — on the contrary.”
Spot gold fell 1.4% to $1,509.04 an ounce at 12:26 p.m. after dropping as much as 5.1%. The metal slid 8.6% last week, the most since 1983.
Holdings in SPDR Gold Shares, the biggest exchange-traded fund backed by the metal, fell 1.3% on Friday, the most since November, according to the latest data compiled by Bloomberg.
“We are in a scenario where investors are selling whatever they can,” said Carlo Alberto De Casa, a chief analyst at ActivTrades.
Gold “is being sold to generate liquidity and to offset losses in other markets,” Zumpfe of Heraeus said. “In some cases, investors also sell their gold holdings in order to keep the value of the precious metal constant in their overall portfolio. Due to the lower value of the equity share, gold would otherwise take up a larger share in terms of value.”
In a roughly 40-minute conference call with reporters on Sunday after the Fed slashed interest rates close to zero and launched a fresh quantitative easing program, Fed Chairman Jerome Powell acknowledged the economy is set to contract in the second quarter as companies and households hunker down to hinder the spread of the deadly coronavirus.
Despite the Fed’s multi-pronged approach, U.S. stock futures tumbled and Treasuries rallied on Monday as investors continue to question whether the Fed has done enough to ease a credit crunch, keep markets flowing and avoid a lengthy recession.
“The traditional rules are out of order and there is nothing which can be classified as safe haven — not even gold,” Naeem Aslam, chief market analyst at Ava Trade, said in an email Monday.
