Monday, March 30, 2020

Is Gold Regaining its Lost Shine?

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What’s happening: Gold futures recorded their biggest weekly rise since 2008, despite closing lower on Friday.

What happened: The precious metal settled around 2% lower on Friday, possibly due to profit taking after the week’s bull run. Gold prices recorded gains on most days to deliver its strongest weekly performance in over 11 years. Despite this, gold prices edged higher in Asian trading today, with the US dollar hovering near a two-week low and investors favouring safe-haven assets amid fears of coronavirus-related lockdowns causing more economic looking.

Meanwhile, the US has reported a surge in COVID-19 cases, becoming the new coronavirus epicentre. The progress made by the US could determine the fate of the bullion in the near term.

Why it matters: In prior weeks, gold prices were on a downtrend as global financial markets tumbled, despite the previous metal being considered as a ‘safe-haven’ asset. Investors were possibly drawing cash from the bullion to cover their losses from equities. The metal rebounded strongly last week, as the US dollar weakened against its major rivals, making gold cheaper for holders of other currencies.

The greenback retreated last week, with the ICE dollar index declining around 4% for the week, on course for its strongest weekly decline since 2009. The US has more than 130,000 coronavirus cases and its death toll has risen to 2,400. The spread of this deadly virus has caused severe economic damage, evident in the mass layoffs, resulting in the US reporting a record 3.3 million weekly jobless claims. Moreover, the University of Michigan’s consumer sentiment index recorded a decline to 89.1 in March, from a reading of 101.0 in the previous month.

With gold refineries being under a lockdown and global supply chains being disrupted, physical gold traders are unable to meet the increased demand for gold, particularly in Singapore. Heavy discounts were also offered in India, which is currently on a 21-day lockdown.

Gold for April delivery declined 1.6% to settle at $1,625 an ounce on Comex but surged 9.5% for the week. In the Asian session, gold futures were trading higher by 0.4% at $1,630.70.

In other metals, May silver fell 1% on Friday, but posted a weekly jump of more than 17%, marking its biggest weekly gain since April 1987. April platinum rose around 19% for the week, while June palladium delivered a weekly surge of more than 42% due to supply concerns caused by a lockdown in South Africa.

What to watch: Traders will be keeping a close eye on gold’s performance this week, with the longer-term forecast of the bullion remaining bullish. Gold traders will be focusing on the physical supply of the asset with lockdowns choking supply chains.

The Markets Today

     

Investors will be watching European stocks today, ahead of some major economic reports from the region.

Context: European markets closed lower on Friday, with investor focus returning to the increase in the number of cases and deaths in the region and European policymakers failing to reach a unified decision to ease the COVID-19 burden on the economy.

Details: After failing to reach a common decision on Thursday, EU policymakers have agreed to extend the decision to two weeks later. This will help leaders finalise the details and reach a unanimous decision.

The G20 (Group of 20) leaders have announced plans to put more than $5 trillion into the global economy to reduce job losses arising from the global shutdowns.

Italy, Spain and Germany have continued to report a strong rise in coronavirus cases and deaths. Italy surpassed China in the number of COVID-19 cases, reporting 97,600 cases and 10,700 deaths. The total case count in Spain has crossed 80,000, while the number of confirmed cases in Germany has exceeded 62,000. News of UK Prime Minister Boris Johnson opting to self-isolate after testing positive for coronavirus didn’t help the cause.

The pan-European index closed 3.2% lower on Friday, with travel and leisure stocks falling more than 5.5%. The FTSE 100 closed lower by 5.3%, while German 30 fell 3.7% on Friday.

Why it matters: Investors are looking forward to the European countries announcing measures to support their economies. A basket of economic reports is due from the region today, including business climate indicator, consumer confidence, economic sentiment indicator, industrial sentiment and services sentiment.

Eurozone’s business confidence, which rose to -0.04 points in February, is expected to fall to -0.05 points in March. The consumer confidence indicator is expected to decline to -11.6 in March, from -6.6 in the previous month. The Eurozone economic sentiment indicator is projected to drop to 93 in March, from February’s reading of 103.5. Industrial and services sentiment indicators are also expected to decline to -12.7 and -3, respectively.

Other Markets: US markets closed lower on Friday, with the Dow, S&P 500 and Nasdaq 100 down 4.06%, 3.37% and 3.79%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

News shaping
the markets today

     

What else to watch today

     

Spain’s inflation rate, business confidence and retail sales, the UK’s nationwide housing prices, consumer credit, mortgage approvals and mortgage lending, Indonesia’s total car sales, Saudi Arabia’s GDP growth rate, Germany’s inflation rate, South Africa’s balance of trade, Brazil’s federal tax revenues, consumer confidence and consumer confidence, Argentina’s economic activity index as well as the US pending home sales and Dallas Fed manufacturing index.