Gold steadies after previous day's rally on Fed cut

March 4, 2020

New York (Mar 4) - Gold was little changed on Wednesday, a day after its biggest percentage gain since June 2016 on the U.S. Federal Reserve’s surprise rate cut, as traders awaited further direction from other major central banks and governments.

Spot gold was up 0.1% to $1,641.39 per ounce at 1102 GMT, while U.S. gold futures slipped 0.1% to $1,642.60.

Gold surged as much as 3.7% on Tuesday after the U.S. central bank cut interest rates by 50 basis points, in an emergency move to help cushion the economic damage caused by the coronavirus outbreak.

“The market is probably waiting for additional potential announcements from other central banks ... the stock market has recovered a little bit, and that’s (leading to) some profit taking in gold,” said Saxo Bank analyst Ole Hansen.

“Cutting rates was probably a wrong decision because it also leaves the Fed with even less ammunition for future cuts ... the market is based on the assumption that it’s a small plaster on the big wound and it’s not going to help in the short term.”

This was the Fed’s first cut outside of a scheduled meeting since the 2008 financial crisis. Lower interest rates reduce the opportunity cost of holding non-yielding bullion.

European equities rose as traders hoped the European Central Bank and euro zone governments would provide more stimulus after the Fed’s move.

The dollar index recovered slightly from a two-month low hit in the last session, capping bullion’s gains.

“I think the reason why gold isn’t doing very much (today) is because across the spectrum of the financial assets nobody’s really quite sure what the immediate, or for that matter the medium-term, outlook is,” INTL FCStone analyst Rhona O’Connell said.

Euro zone businesses largely withstood the impact of the coronavirus in February, though a survey on Wednesday painted a gloomier outlook, with falling export demand and disruptions to supply chains.

Investors now await the release of U.S. ISM non-manufacturing PMI data and the Fed’s Beige Book of economic condition later on Wednesday.

Elsewhere, palladium fell 2.7% to $2,434.56 per ounce, while platinum dipped 0.1% to $874.27. Silver gained 0.3% to $17.23 an ounce.

Auto industry platinum demand will rise for the first time since 2016, but it won’t be enough to offset a decline in investment buying, leaving the market in surplus, the World Platinum Investment Council said.


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