Bullion has a long-standing reputation as a go-to asset in times of stress
After getting caught up in last week’s punishing virus-driven sell-off, gold is seeking to refresh its haven credentials.
The metal advanced after a weekend of negative developments, including a surge in virus cases around the world. With rising expectations that central banks will now act, assets including copper and oil also gained. Friday’s big slump in gold was put down to investors’ forced selling to cover losses elsewhere.
“Gold’s fundamentals remain overwhelmingly strong and any near-term price corrections aren’t significant in terms of the bigger picture,” said Gavin Wendt, senior resource analyst at MineLife Pty. Bullion’s retreat last week “was nowhere as bad as the 10%-plus drubbing equity markets took, so it can be argued gold has passed its safe-haven challenge,” he said.
Bullion has a long-standing reputation as a go-to asset in times of stress. That said, there’s a chance that investors sell gold during extreme turmoil, something seen late last week and, before that, for a period in the 2008 financial crisis.
Investors were “cashing out to cover losses and meet margin calls in other markets,” RBC Capital Markets said in a note, referring to Friday’s drop. “We do not view this as a loss in faith in gold’s role as a ‘perceived safe haven’ or a fundamental shift in the attitude toward gold.”
Spot gold climbed as much as 1.6% before paring some gains to trade at $1,595.44 an ounce at 1:23 p.m. in New York. Prices fell 3.6% on Friday, the most since 2013. Silver also advanced, while platinum and palladium declined.
Gold futures for April delivery rose 1.8% to settle at $1,594.80 an ounce on the Comex.
Investors are assessing gold’s outlook amid signals that the Federal Reserve will join other central banks in easing policy. Chairman Jerome Powell opened the door to a cut at the March 17-18 meeting by releasing a rare note Friday pledging to “act as appropriate” to support the economy.
The Bank of Japan issued an emergency statement as the week began, saying it will “strive to provide ample liquidity.”
“It is highly likely that we are going to see a more coordinated action from central banks around the globe from here onwards,” said Naeem Aslam, chief market analyst at Ava Trade. “Traders are hoping that fear of prolonged slow economic growth would keep central banks on the edge, and this is supporting the gold price.”
Gold could be at risk of more declines if the Fed doesn’t meet investors’ expectations, said Ole Hansen, head of commodity strategy at Saxo Bank A/S. “So much has now been priced in that the market may be disappointed if the Fed doesn’t react soon.”
While gold prices sank on Friday, investors continued to buy into bullion-backed exchange-traded funds. The worldwide total expanded 8.6 metric tons to a record 2,634.4 tons, according to an initial tally compiled by Bloomberg.
“The resilience of gold ETFs is encouraging,” Joni Teves, a strategist at UBS Group AG, said in a note. “Gold looks attractive here as a hedge against the backdrop of negative rates and acute uncertainty that is likely to persist.”