Gold ends lower after topping $1,700 to tap highest intraday level since late 2012

April 7, 2020

New York (Apr 7)  Gold futures settled lower on Tuesday, giving up earlier gains that saw the metal top $1,700 an ounce to reach its highest intraday level since late 2012.

There was a “follow through short-squeeze” in gold prices early Tuesday following Monday’s sharp gain, but that morning squeeze gave way to retracement “as gold became overbought on a near term basis,” said Tyler Richey, co-editor at Sevens Report Research.

June gold on Comex GCM20, -0.77% declined by $10.20, or 0.6%, to settle at $1,683.70 an ounce, after jumping 2.9% in the previous session. It touched an intraday high of $1,742.60 on Tuesday, the highest intraday mark for a most-active contract since December 2012, according to FactSet data.

Gold/s recent substantial gains signal “that some investors are using this stock rally as an opportunity to hedge their riskier bets,” wrote Marios Hadjikyriacos, investment analyst at XM, in a Tuesday note.

The analyst said that the trillions of dollars being doled out by governments may be also be supporting buying in haven gold. He said the “explosion in government deficits has reawakened fears of debt monetization and currency debasement.”

Indeed, according to The Washington Post, U.S. lawmakers are working on a fourth rescue package adding another $1 trillion to the fiscal deficit, to help prop up the economy and assist workers and small companies. That package comes just after a roughly $2.3 trillion recovery program known as the CARES Act was passed in late March.

“The fundamental backdrop for the gold market remains bullish and the yellow metal has formed a solid initial support band between roughly $1605 and $1660 on the daily chart,” Richey told MarketWatch.

Richey added that “another sharp drop in inflation expectations as a result of the economic outlook materially deteriorating due to the negative impact of the global COVID-19 pandemic” could potentially derail gold’s rally.

Barring that, “gold should continue higher albeit in continued volatile trading in the weeks and likely months ahead,” he said.

The move for the precious metal came as assets perceived as risky, like stocks, were rallying on growing signs that the spread of the COVID-19 pandemic was leveling off.

However, investors remain fearful that the U.S. stock market may yet return to the lowest levels seen on March 23 if the outlook for the global economy darkens further, making way for higher gold prices.

“Investors moving into risk assets at this stage believe that we’re heading into a V-shaped recovery” for the stock market, said Hussein Sayed, chief market strategist at FXTM. “Attractive valuations, ‘fear of missing out’ and extraordinary stimulus packages also exaggerate the upside moves in prices.”

“However, no one yet knows the exact damage this virus has already done to the global economy, corporate earnings, and what kind of exit strategies countries will follow in the weeks ahead,” he said in a market update. “In my opinion, the best-case scenario is likely to be a U-shaped recovery and not a V-shaped one.”

Among other Comex metals, silver for May delivery SIK20, +1.42% picked up 31.1 cents, or nearly 2.1%, to $15.48 an ounce, following a 4.7% surge a day ago.

May copper HGK20, +2.14% settled at $2.2725 a pound, up 2.5%. July platinum PLN20, +1.23% added 1.8% to $745 an ounce and June palladium PAM20, +1.72% rose 0.8% to $2,094.30 an ounce.


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