Gold price falls as risk appetite improves amid easing lockdowns

May 5, 2020

London (May 5) - Gold prices slipped on Tuesday as the U.S. dollar strengthened and risk appetite among investors improved with moves by major economies to ease lockdowns related to the coronavirus crisis.

Spot gold was down 0.3% at $1,696.56 per ounce at 1108 GMT. U.S. gold futures fell 0.5% to $1,705.20 per ounce. "The gradual reopening of various economies is the biggest driver right now which is lifting sentiment. Gold seems to be in consolidation mode at the moment and very sensitive to dollar moves," OANDA analyst Craig Erlam said.

"Investors may be a little too optimistic at this point, underestimating just how gradual a process this will be. The bullish case for gold still remains the enormous amounts of monetary stimulus in the system," he added. European stocks rose after a batch of positive corporate earnings reports added to optimism over the curbing of restrictions imposed due to the coronavirus.

Italy and the United States were among several countries to tentatively ease lockdowns on Monday to revive their economies. Further limiting gold's appeal, the dollar index rose 0.3% against a basket of major currencies. Market participants were also watching rising China-U.S. tensions after President Donald Trump threatened new tariffs on China for its handling of the virus outbreak.

The pandemic, which has battered global growth and prompted governments to unleash a wave of fiscal and monetary measures to limit economic damage, has infected about 3.6 million people globally and killed more than 250,000.

Gold tends to benefit from widespread stimulus measures from central banks because it is widely viewed as a hedge against inflation and currency debasement. "Gold remains as a safe-haven as currencies are being devalued by massive stimulus programmes introduced by central banks and governments around the world to alleviate the worst of the COVID-19 outbreak," Phillip Futures said in note.

"This has also increased physical demand of gold to hedge against the debasement of fiat currencies thereby triggering a huge demand for gold ingots, bars and coins." Indicative of sentiment, holdings in the world's largest gold-backed exchange-traded fund, SPDR Gold Trust , rose 0.4% to 1,071.71 tonnes on Monday.

The focus now is on the U.S. ISM non-manufacturing PMI data, due later in Tuesday. Elsewhere, palladium dropped 0.5% to $1,839.22 per ounce, while platinum eased 0.2% to $764.20 and silver shed 0.6% to $14.75.


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