Gold Strong on Stock Melt Down

Gold Strong on Stock Melt Down

Gold strong on stock melt down sparked by the new oil war between the Saudis and Russia and the on-going fear of the global impact of the coronavirus. Gold climbed above the $1,700 an ounce threshold for the first time in more than seven years early Monday before falling back a touch.

The Dow Jones Industrial Average tanked more than 1,800 points at the open, while the S&P 500 dropped 7%. The massive sell-off triggered a key market circuit breaker in morning trading. Trading was halted for 15 minutes at 9:35 a.m. ET.

Investors seeking a safe haven amid a broader-market meltdown initially sent the yellow metal soaring, with front-month futures touching $1,704.30 an ounce on Comex. But the move up wasn’t sustainable amid plummeting oil prices. Crude tumbled about 30% at the open Monday, and that put a lid on gold’s advance because the precious metal is frequently seen as a hedge against oil-led inflation.

Equities slid and U.S. 10-year Treasury yields fell to a record low as the global panic over the spread of the novel coronavirus and its effect on the world’s economy worsened over the weekend. OPEC and non-member Russia failed to reach an agreement on an oil production cut on Friday, triggering an apparent price war by Saudi Arabia. The Bloomberg Commodity Index reached its lowest level since 1986.

The coronavirus, designated COVID19, has killed more than 3,800 people worldwide and sickened more than 109,000. 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 global health emergency.

Chinese data showed exports contracted sharply in the first two months of the year while imports declined. A Reuters poll showed that the virus may have cut Chinese economic growth in half in the first quarter, compared with the prior three months. Meanwhile, northern Italy was put on lockdown to prevent the spread of the virus and the number of cases in the U.S. grew. A number of companies including Apple Inc. directed employees to stay home and work remotely.

The April gold futures contract rose 6.8% last week to settle at $1,672 an ounce on Comex. Currently, April is at $1,684.50.

Both the Dow Jones Industrial Average and the Standard & Poor’s 500 Index have plummeted 11% in the past two weeks, through Friday. A surprise 50 basis point interest-rate cut by the Federal Reserve last week wasn’t enough to stem equities’ declines for very long. The CME FedWatch Tool shows 100% odds of another rate cut by the Fed by policy makers’ next scheduled meeting on March 18. The European Central Bank also is scheduled to announce a policy decision Thursday and may cut rates.

Both lower interest rates and declining equities are typically bullish for gold.

May silver futures rose 4.9% last week to settle at $17.26 an ounce on Comex. Spot palladium, a metal used primarily in autocatalysts, fell 1.2% last week to $2,584.13 an ounce. The metal rallied 14% in February. Spot platinum increased 1.5% last week to $905.28 an ounce. All three metals were lower early Monday.

 

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