Gold edges lower as stock-market plunge points to further deleveraging

March 18, 2020

London (Mar 18)  Gold edged lower Wednesday, signaling a flight to liquidity by investors will continue to outweigh the metal’s traditional haven appeal as equities head for another round of heavy losses on worries over the economic impact of the COVID-19 pandemic.

Gold for April delivery GCJ20, -1.199% on Comex was off $7.80, or 0.5%, at $1,518 an ounce, while May silver SIK20, -5.362% fell 11.5 cents, or 0.9%, to $12.38 an ounce.

U.S. stock-index futures traded limit down overnight, pointing to sharp losses for stocks on Wednesday after a Tuesday bounce. Sharp selloffs in equities and other risky assets have tended to drag gold lower as well in recent weeks, despite the metal’s haven status, with analysts tying pressure to forced selling as deleveraging by funds and other investors see them dump gold along with other assets.

Strong gains by the U.S. dollar could also be a factor, said Daniel Briesemann, analyst at Commerzbank, in a note. The dollar on Tuesday hit a three-week high on a trade-weighted basis and has seen upward pressure amid a global scramble for dollars outside the U.S. A stronger dollar can be a negative for commodities priced in the unit, making them more expensive to users of other currencies.

A rise in government bond yields was also seen as a hurdle for gold, Briesemann said. Higher yields increase the opportunity cost of holding nonyielding assets like gold.


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