Gold retreats after best week since 2008 as caution reigns

Gold declined after its biggest weekly advance since 2008 amid investor caution on policies aimed at mitigating the impact of the global coronavirus pandemic.

The dollar climbed and Asian equities fell after the top American infectious disease expert said deaths from the coronavirus in the world’s largest economy may reach 200 000. Bullion’s muted trading comes after the market was thrown into turmoil last week as the health crisis disrupted supply chains, creating a squeeze in futures as sellers’ capacity to meet commitments to deliver the metal was curtailed.

Volatility has spiked this month as, in addition to the supply squeeze, some investors sold the metal to raise cash to cover losses elsewhere. The dollar has also emerged as a preferred haven, heading for its best month since late-2016, amid concerns over liquidity and funding conditions across markets.

“Liquidity will likely be the key focus in the next couple of days as we approach quarter end,” said Howie Lee, an economist at Oversea-Chinese Banking. “Similar to what we saw in early March, investors might be looking to cash in on their gold holdings, with bouts of selling pressure to surface. Given the current levels of Treasury yields and the dollar strength, gold is still trading below what we deem as fair and we remain bullish on the precious metal.”

With signs that the historic gold squeeze is easing, investors’ focus returns to measures from governments and central banks to cushion the fallout from the virus. President Donald Trump signed a $2 trillion economic stimulus package Friday, the largest in US history, while the Federal Reserve has pledged unlimited bond purchases. Elsewhere, the European Central Bank scrapped most of the bond-buying limits in its pandemic emergency program.

“The precious metal sector has been the clear winner from the unprecedented US fiscal measures to support the reeling economy,” analysts at Australia & New Zealand Banking Group said in a note.

Spot gold declined 0.5% to $1 620.72 an ounce at 11:03 a.m. in Singapore after earlier gaining 0.6%. Prices jumped 8.6% last week and are on course for a sixth quarterly advance. The Bloomberg Dollar Spot Index added 0.4%, also set for a quarterly gain.

The spread between London and New York gold prices stood at about $30 an ounce on Monday, compared with more than $60 last week. Open interest in April Comex futures continued to decline on Friday, while open interest for the June contract picked up. Money managers cut their short position in gold by 78% in the week ended Tuesday, the most in government records going back more than a decade.

In other precious metals, silver fell 3.3%, platinum dropped 3.2%, and palladium advanced 0.4%. Holdings in exchange-traded funds backed by palladium are near the lowest since 2008.

© 2020 Bloomberg L.P.