Monday, March 16, 2020

All That Glitters.. Has Gold Lost its Appeal?

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What’s happening: Gold plummeted on Friday, recording its biggest weekly loss since 1983 to join the sell-off across global markets due to the coronavirus impact.

What happened: The safe-haven metal tumbled around 4.5% on Friday, as investors preferred selling the asset to raise cash and cover market losses caused by the spread of coronavirus. For the week, the metal was down around 9%.

Gold has plunged more than $180 since reaching a seven-year high of $1,702.56 an ounce on Monday last week, with traders disposing of the safe-haven asset to meet their margin calls.

Why it matters: Gold has always been considered as safe-haven asset, one that investors would flock to amid high market volatility. However, last week saw investors withdrawing their cash from gold trading to cover their losses following the strong sell-off in the global markets. The metal is also losing its shine due to strength in the US dollar. The greenback surged 1.2% to reach a two-week high.

Silver also joined palladium and platinum to record declines in a bear market, with escalating concerns over the global economy spiraling into a recession triggered by the coronavirus outbreak. Palladium nosedived more than 8% on Friday, just a day after falling 28%, and was on track to recording its largest weekly percentage drop in history.

Spot gold declined 3.8% to $1,517.38 an ounce on Friday, ending the worst week since March 1983, while gold futures fell 4.6% to settle at $1,516.70 per ounce. Gold futures also had their strongest weekly decline since 2011 on the COMEX in New York.

The US stock market delivered a sharp rebound on Friday, after reports of President Donald Trump declaring a national emergency due to related to the COVID-19 pandemic.

In Asian session, gold futures were trying to recover some of last week’s losses and futures rose 1.1% to $1,533.20 per ounce.

What to watch: Traders will be keeping an eye of gold’s performance this week, as the longer-term forecast for the bullion remains bullish, despite last’s week chaos. Demand for gold is likely to rebound if coronavirus causes more disruption to the global economy.

The Markets Today

     

Investors will be watching European stocks today, with markets closing higher on Friday but posting heavy losses for the week due to coronavirus fears.​

Context: European markets closed higher on Friday, as stocks made a slight recovery from one of the worst sell offs in several years. European indices have been under significant pressure due to the rising cases of coronavirus in the region and fears of a global economic recession.

Details: European stocks had recorded their biggest single-day loss on Thursday, following the US President’s announcement of travel bans from 26 European countries and the ECB’s decision to keep interest rates unchanged. Markets moved higher on Friday, as traders took advantage of buying equities at highly attractive prices and with some improvement in investor sentiment due to the FDA granting emergency use authorization for COVID-19 diagnostic tests developed by Swiss giant Roche. Shares of the company jumped after receiving FDA approval.

European stocks rallied strongly earlier in the session and were on course to register their best day since 2008. However, markets cut back their earlier gains with Spain declaring a ‘state of emergency’ due to the coronavirus outbreak. The benchmark Stoxx 600 index rose 1% on Friday, following a record 11.5% decline on Thursday. The index shed 18% for the week, registering its worst weekly decline since the 2008 crisis. The FTSE 100 closed 2.46% higher, while the German 30 rose 0.77% on Friday.

The coronavirus has now infected over 169,000 people globally, with the death toll rising to 6,500. Italy remains the most affected country in Europe, with confirmed cases exceeding 24,000 and around 1,800 deaths. Italy is under a complete lockdown to arrest the spread of COVID-19.
Shares of Italian Leonardo spiked 5% after the company reported an increase in its free operating cash flow. Wirecard’s shares also jumped 5% after an independent audit cleared the company of accusations of manipulating its financial statements.

In economic news, Norway's central bank cut its key policy rate, while Sweden's Financial Supervisory Authority lowered the counter cyclical capital buffers for banks to 0%. While keeping its benchmark interest rate unchanged, the European Central Bank announced a new stimulus to support the economy.

France confirmed inflation rate of 1.4% in February, while Germany’s inflation rate was confirmed at 1.7%.

Why it matters: After registering a downbeat performance last week, all eyes are on the ECB to announce more measures to support the economy. Italy, the most affected nation in the area, will be also reporting its inflation rate today. Expectations are for the inflation rate to have declined to 0.4% in February, from 0.5% in the previous month. Various other countries in the Eurozone are also expected to announce measures to control the spread of coronavirus.

Other Markets: The US markets closed higher on Friday, with the Dow, S&P 500 and Nasdaq gaining more than 9% each.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

News shaping
the markets today

     

What else to watch today

     

India’s Wholesale Price Index, Canada’s new motor vehicle sales, Brazil’s net payrolls as well as the US NY Empire State manufacturing index.