Gold joins global market slump as investors cash in on rally

Not even the safe haven of gold has been spared from this week’s global market rout.

Bullion is heading for its biggest weekly loss since 2011, despite climbing to the highest in more than seven years earlier this week, as investors sell the metal to meet liquidity needs. Equities have been in freefall on concerns emergency fiscal and monetary packages won’t be enough to stave off a recession amid the coronavirus pandemic that’s hitting global growth.

The global rout in equities has triggered margin calls and as investors look for opportunities where they can cash in, a stronger dollar has also curbed the metal’s appeal.

“At extreme periods of stress, absolutely gold tends not to benefit as much as you’d expect,” Daniel Hynes, senior commodity strategist at Australia & New Zealand Banking Group said in a Bloomberg TV interview. “Gold looks a pretty good bet over the medium term. So we would still expect to see significant upside actually from here. You could even call a 10% to 15% rally a fairly good possibility in the shorter term.”

Spot gold fell 1.3% to $1 555.42 an ounce, following a 3.6% drop on Thursday. Prices are down 7.1% this week, after touching $1 703.39 on Monday, the highest level since December 2012.

Asian stocks tumbled Friday after the S&P 500 had its biggest one-day sell-off since 1987 in a wild session that saw market-wide circuit breakers triggered for the second time in a week. Investors are doubting the efficacy of policy responses as coronavirus cases continue to grow across the world and restrictions on people and businesses crush sentiment.

Gold investors will turn their attention to the Federal Reserve’s upcoming meeting after the central bank made an emergency rate cut last week. The Fed offered a huge injection of liquidity to the Treasury market Thursday. The moves were reminiscent of the bank’s quantitative easing program during the financial crisis of 2008. Elsewhere, the European Central Bank unveiled a series of monetary policies Thursday that failed to pacify traders.

“There’s been some existential sort of issues in play which have resulted in gold getting whacked in the shorter term,” Hynes said. “But when I look at all the things that tend to drive gold prices, they still look like they’re going to support significantly higher prices — bond yields are falling, we expect to see the US dollar remain relatively weak.”

Among other main precious metals, silver fell 2% and platinum rose 0.4%. Palladium advanced 0.4% following a slump of almost 20% Thursday. Fears of economic fallout from the virus, along with slowing Chinese car sales, are now battering the commodity, which had surged to a record last month amid the outlook for widening deficit.

© 2020 Bloomberg L.P.