Gold Down As Stocks Tumble

Gold Down As Stocks Tumble

Gold down as stocks tumble over 7% at this morning’s opening, triggering the “circuit breaker” shutdown of trading. After resuming trading, the Dow is still down well over $1850, off almost 8%. The next circuit breaker would be thrown if the stocks drop 12%.

Gold had risen early Monday after the U.S. Federal Reserve cut interest rates to almost zero in a surprise move intended to curb the economic impact of the novel coronavirus.

On Friday, the yellow metal had rebounded after a down week as equities tumbled and the dollar fell from a two-week high, but gold came off its initial highs as traders sold the precious metal to raise cash to pay off margin calls in other assets. Gold is also vulnerable to the broader-market meltdown as investors saw the Fed’s move as a desperate action to try to stave off a recession.

The U.S. stock market had its worst losses in a single day since 1987 on Thursday and fell into a bear market, though prices recovered some Friday.

Investors continue to be spooked by the escalating impact of the novel coronavirus on the global economy. The coronavirus, designated COVID19, has killed almost 6,500 people worldwide and sickened more than 167,000. The first cases were in China, but the number of global infections has now outstripped it. The virus is a WHO-designated pandemic.

April gold futures tumbled 9.3% Friday to settle at $1,516.70 an ounce on Comex. The yellow metal started last week by climbing above the $1,700-an-ounce threshold for the first time in more than seven years, before being hit by the liquidity crunch and Friday’s equities rally. Currently, the April Contract is clawed its way back up to $1,483.30 after dropping to $1456.90 when the stock markets plunged at this morning’s opening.

The Federal Open Market Committee announced its second emergency rate cut in as many weeks on Sunday, just three days before its next regularly scheduled meeting, and promised to boost bond purchases by at least $700 billion to shore up the economy.

Policy makers decided to cut rates by 1 percentage point to 0% to 0.25% to “help support economic activity, strong labor market conditions and inflation,” according to the FOMC statement. “The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”

The coronavirus has halted economic and other activity in much of the world, with some of the direst reports coming from Italy and Spain, which are on total lockdown. In the U.S., the Centers for Disease Control said Sunday that gatherings of more than 50 people should be canceled for the next eight weeks. New York City and the states of California, Ohio, Illinois, Massachusetts and Washington state have closed restaurants and bars in an effort to slow the spread of disease. Travel to and from Europe has been suspended, major sporting leagues canceled their seasons, universities, schools and theme parks have closed.

May silver futures dropped 9.4% Friday to settle at $14.50 an ounce on Comex, a drop of 16% for the week. Spot palladium decreased 30% last week to $1,812.82 an ounce, while spot platinum tumbled 16% for the week to $763.28 an ounce.

 

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