Gold Rebounds Braces for Week

Gold Rebounds Braces for Week

Gold rebounds, braces for another volatile week. The yellow metal bounced back from Friday’s steep decline to hover around the $1,600 mark amid speculation that the Federal Reserve will cut interest rates in two weeks as the coronavirus continues to spread.

The Dow briefly lost its morning gains and Gold held strong as key U.S. monthly manufacturing numbers for February dipped to 50.1%, according to the Institute for Supply Management’s purchasing managers index, released Monday. Economists polled by Dow Jones expected the PMI to come in at 50.8%. The slow growth in U.S. manufacturing last month coincides with China, the country hardest hit by the coronavirus. Chinese factory activity contracted at the fastest pace on record last month, data Saturday showed.

Fears that a pandemic will curb global economic growth caused a meltdown in the broader market last week, with U.S. stocks posting their worst weekly performance since the Great Recession more than a decade ago. Gold initially rallied last week as investors sought a safe haven from plummeting equities, but the yellow metal tumbled 4.6% Friday to settle at $1,566.70 on Comex. Bullion closed $110 higher just four days previously.

Friday’s was the lowest settlement for the front-month futures contract since Feb. 5. April gold dropped 5% last week and 1.3% last month. Currently, the April contract is at $1,598.30.

The coronavirus, designated COVID19, has killed more than 3,000 people worldwide and sickened more than 88,000. Most of the cases have been in China, where the outbreak started, but the U.S. saw its first casualties over the past couple of days. The virus is a WHO-designated global health emergency.

Investors are convinced that the Federal Reserve and other central banks will have to act to prop up the global economy by cutting interest rates sooner rather than later. Reductions in interest rates are typically bullish for gold.

The CME FedWatch Tool shows 100% odds of a 50 basis point rate cut by the Fed on March 18. No one expected a cut that large just a week ago, and the probability was 88.9% that there wouldn’t be a cut in March at all. The CME tool also gives 100% odds of a rate cut in April,
compared with 39.7% a week earlier.

Fed Chairman Jerome Powell issued a rare unscheduled statement Friday: “The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. The Federal Reserve is closely monitoring developments and their implications for the economic outlook. We will use our tools and act as appropriate to support the economy.”

May silver futures fell 7.2% Friday to settle at $16.46 an ounce on Comex. Front-month silver futures dropped 12% last week and 8.6% last month.

Spot palladium, a metal used primarily in autocatalysts, slid 8.7% Friday. It decreased 3.5% last week but rallied 14% in February. Spot platinum fell 4.1% Friday and 11% last week. It declined 9.9% last month.

 

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