Gold resumes rally on flight to safety

April 16, 2020

London (Apr 16) - Gold rose on Thursday as investors sought safe-havens after sombre U.S. economic reports exacerbated fears of a global recession amid central banks’ efforts to stem the financial rout from the coronavirus outbreak.

Spot gold rose 0.4% to $1,722.27 per ounce by 0915 GMT, erasing losses driven by profit-taking and a stronger dollar earlier in the session. U.S. gold futures rose 0.9% to $1,755.20. "The main factor supporting gold at the moment is the extraordinary amount of stimulus from central banks. I don't think it's been fully priced in yet," OANDA analyst Craig Erlam said.

"The record highs hit in the aftermath of the global financial crisis, and even higher, look perfectly reasonable, under the circumstances. The $1,800 level does not seem very far away." U.S. retail sales plunged 8.7% last month, the biggest decline since the government started tracking the series in 1992, while manufacturing output fell by the most in 74 years.

Japanese business confidence plunged to fresh decade lows in April, while British retail spending slumped by more than a quarter during the first two weeks of lockdown measures. Gold is often used as a safe store of value during times of political and financial uncertainty. It is highly sensitive to interest rates, as lower rates reduce the opportunity cost of holding non-yielding bullion.

Central banks have rolled out a wave of fiscal and monetary measures to ease the economic damage from the virus, which has infected more than 2 million people globally and killed 136,667. Focus now shifts to U.S. jobless claims data later in the day, expected to show a jump to a staggering 20 million over the past month.

"While gold will continue to be in demand, sometimes investors need funds to cover their margin calls, so losses in other financial assets might lead to falls in the gold price," said John Sharma, economist at National Australia Bank. While gold usually gains from reduced risk appetite, bullion has, on occasion, moved in tandem with equities recently, with sharp selloffs in wider markets prompting investors to sell precious metals to cover losses elsewhere.

Gold's latest rise came despite gains in the dollar , also considered a safe haven. Elsewhere, palladium climbed 1.5% to $2,212.61 an ounce, while silver eased 0.2% to $15.45 per ounce and platinum was steady at $779.69.


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