Gold Aiming For $1,600

Gold Back Near $1,600

Gold aiming for $1,600 as financial markets rebound on hopes that the U.S. government will announce a fiscal stimulus package. The yellow metal has had a tough week after a broader-market meltdown triggered margin calls in other assets and traders sold gold to pay them.

At this morning’s opening bell, the Dow jumped over 1,000 points, but has settled back to a 600+ gain. The Dow had tumbled 10% Thursday in its worst day since 1987, while the Standard & Poor’s 500 Index was down 9.5% at the close. U.S. equities officially entered a bear market. Trading curbs and actions from the Federal Reserve and the European Central Bank weren’t enough to stem the selloff for long.

Gold started the week by climbing above the $1,700-an-ounce threshold for the first time in more than seven years early Monday, with the precious metal performing its usual role as a safe haven against equity markets that declined 19% between Feb. 19 and Monday and oil prices that dropped 30% in a single day. But as the liquidity crunch hit the broader market, precious metals’ immunity to the upheaval subsided. A strong dollar also weakened precious metals as an alternate investment.

Investors were spooked about the escalating impact of the novel coronavirus on the global economy. A Wednesday night speech by U.S. President Donald Trump intended to bolster sentiment had the opposite effect. Trump announced he was halting travel from Europe to the U.S. for 30 days and warned Americans to be vigilant to protect themselves from the disease but failed to provide an economic stimulus plan. The news worsened Thursday as major sporting leagues canceled their seasons, universities and schools closed and cities and states declared emergencies and banned large gatherings.

The coronavirus, designated COVID19, has killed almost 5,000 people worldwide and sickened more than 133,000. Most of the cases have been in China, where the outbreak started, but more and more are being reported around the world. The virus is a WHO-designated pandemic.

Gold futures fell 3.2% Thursday to settle at $1,590.30 an ounce on Comex. The April gold futures contract dropped 4.9% in the first four days of the week. The April contract is currently at $1,567.20. Spot palladium, a metal used primarily in autocatalysts, plummeted 20% to $1,852.08 an ounce and is down 28% in the first four days of the week. It was at record highs just weeks ago and was headed for its biggest weekly drop on record.

May silver futures dropped 4.6% Thursday to settle at $16.01 an ounce on Comex. The contract was down 7.3% in the first four days of the week. Spot platinum decreased 11% Thursday to $766.68 an ounce and fell 15% for the week to date.

The Federal Reserve intervened Thursday in an attempt to stem the broader-market decline by ramping up asset purchases, and it was followed early Friday by the Bank of Japan. The European Central Bank announced measures Thursday to support bank lending and expanded its asset-purchase program but failed to cut interest rates as expected.

The Bank of England announced an emergency 50-basis-point interest-rate cut early Wednesday, following the Fed, which did the same thing last week. The CME FedWatch Tool shows 100% odds of another Fed cut at policy makers’ next scheduled meeting March 18. Lower interest rates are typically bullish for gold.

In economic news, investors awaited the release of the U.S. consumer sentiment index Friday. Initial jobless claims dipped last week, data released Thursday showed, indicating that the coronavirus hasn’t affected the labor market yet. The U.S. producer price index posted the biggest drop in five years in February.
 

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