Gold Glitters Brighter, Surges to 7-Year High

What’s happening: Gold futures surged to their highest level in more than seven years on Thursday, following the announcement of a new lending plan by the US Federal Reserve.

What happened: The precious metal settled at its highest since October 2012, with investors looking for some cover amid renewed fears of a slowdown in global economic growth.

Investors scurried for safe-haven assets as the US economy reeled under the coronavirus pandemic. The latest jobless claims data and a declining US dollar due to the Fed’s new lending plan to support the economy drove the demand for the precious metal, sending gold futures higher by as much as 4.2%. Gold futures have gained 7% this week.

Why it matters: The Federal Reserve announced additional financial aid of $2.3 trillion to provide support to the crumbling US economy as coronavirus continues to spread. The latest financial aid comes in the form of a new loan plan and additions to the current ones.

Fears for the US economy were fuelled by the latest jobless claims report, which hit yet another record high in the first week of April. Jobless claimed surged 6.6 million to bring total job losses to 16.8 million in less than one month.

The news exerted pressure on the greenback, driving the ICE US Dollar Index down. The index, which is a measure of the dollar’s performance versus a basket of six major currencies, fell 0.6% to 99.52 on Thursday. A weaker greenback supported demand for gold.

June gold climbed 4.2% to settle at $1,752.80 an ounce on the Comex on Thursday, after reaching as high as $1,754.50 during the trading day. For the week, the precious metal has gained around 7%. Gold-backed ETFs for March added 151 tonnes, resulting in a net inflow of $8.1 billion.

May silver jumped 5.6% to $16.053 an ounce, with the metal gaining around 9.6% for the week. May copper slipped 0.02% to $2.2595 a pound, while July platinum gained 2% to $748.60 an ounce.

What to watch: The US EIA (Energy Information Administration) is scheduled to release its weekly petroleum supply report today. Any unexpected rise in supply will exert further pressure on oil prices. Announcements by the OPEC to lower output may support oil prices.

The British pound will be in focus today, with the currency continuing to rise against the US dollar.

Context: The British pound had suffered a strong decline during the first half of March as the slump in global markets resulted in massive outflows of global funds from the UK. The sterling posted gains versus its major rivals ahead of the weekend, reaching a one-week high versus the greenback. Gains came following some improvement in global market sentiment and a report that the country’s Prime Minister Boris Johnson had been shifted out of the ICU.

Details: The pound rose towards its highest weekly gain, despite a weaker-than-expected GDP growth report from the country. The Office for National Statistics reported Britain’s GDP growth at 0.1% in the three months to February, missing expectations of 0.2% growth.

News of an improvement in PM Boris Johnson's health conditions pushed the pound higher yesterday. The currency rose despite expectations of the UK extending its coronavirus lockdown measures beyond three weeks, with more than 65,800 COVID-19 confirmed cases in the country and the death toll rising past 7,900.

The pound registered a one-week high of 1.2448 versus the US dollar and traded at 1.1461 versus the euro.

What to watch: The British pound is expected to remain well supported as long as Johnson's health continues to improve, and the stock market maintains its upward momentum. However, any turnaround in overall sentiment due to the spread of coronavirus will hurt the sterling’s progress.

Other Markets: US indices closed higher on Thursday, with the Dow, S&P 500 and Nasdaq 100 gaining 1.22%, 1.45% and 0.77%, respectively.

Turkey’s unemployment rate, current account, industrial production and retail sales, India’s deposit growth and foreign exchange reserves, Russia’s foreign exchange reserves, current account and balance of trade, France’s industrial production as well as the US inflation rate and government budget.

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