Gold keeps losing its shine

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By: Andria Pichidi

It’s a global selloff in stocks and bonds as everyone wants cash, and in dollars at that, which is intensifying liquidity issues. The markets are dysfunctional as COVID-19 and the global containment policies, as well as fiscal and monetary policy measures exacerbate investor fears, which are generating a negative feedback loop.

US and EU Equity futures are limit down after Tuesday’s rally, while longer dated Treasuries are also cheaper after yields spiked higher yesterday .Oil is also cratering to add to global woes and recession angst.

Fundamentals/Newsflow

Gold meanwhile, fell by 2% though have so far remained off the three-and-a-half-month low seen on Monday. Currently is near R1@ $1,511.75 , below the open price at $1,527.63.  It seems that Gold has lost its lure as a safe haven, with dollar cash prices for the metal down 11.5% after it hit a 9-year high just on March 9th at $1703.10.

This then we have a sharp tumble. Last week’s rout was the biggest weekly fall gold has seen since 1983. The reason for gold’s tumble are in part the consequence of margin calls, which has forced investors to sell gold as a means to raise cash to cover losses in other positions, especially long equity positions. A similar pattern was seen during the 2008-9 financial crisis, when gold prices dropped in step with equity market declines over a period of about three months.

Another factor weighing on gold is the expectation that countries will be forced to sell a portion of their gold reserves to pay for the measures being taken to deal with the coronavirus pandemic.

Support
  • $1478 – S1 from PP Analysis but also 50-week EMA
  • $1443 – 8-months Support
  • $1380 – S3 and June-July 2019 low
Resistance 
  • $1566 – R1 and February’s low
  • $1611 – 8th January high and 20-day SMA


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