The gold market is becoming quite volatile as the markets come to terms with the effects of the rapid spread of COVID-19. Notably, gold plunged as a drumbeat of moves indicating the probable reopening of economies eroded the appetite for the haven assets. The price of the precious metal dropped below $1,700 an ounce before it pared losses as investors counted down to policy announcements from two major central banks.
The yellow metal eased for a third consecutive day after the United States equities hit the highest in about seven weeks. That happened as states like Florida took significant steps toward reducing restrictions. One of the hardest-hit countries, Italy, prepared to start reopening. But, the World Health Organization warned that the coronavirus pandemic is quite far from over.
While bullion has retained the levels near the highest in over seven years amid this outbreak; investors now question whether there is a scope for more gains given these restarts. Concurrently, they are tracking the stimulus by the central banks and governments to help growth with the European Central Bank and the Federal Reserve scheduled to make policy announcements on Wednesday and Thursday.
Bullion saw some pressure from the strength in stocks. The senior manager for commodities at broker Phillip Futures Pte, Avtar Sandu, said:
“The demand destruction due to Covid-19 cannot be overstated, volatility in financial markets remains elevated and precious metals; especially gold, remain a good hedge.”
Additionally, the rebound of activity may be pushed back. Spot gold lost up to 1.3% to $1,692.63 an ounce but was trading at $1,702.51 at 8:26 a.m. in London. Prices that had exploded to $1,747.36 on April 14, the highest since 2012, lost a cumulative 1% over Monday and Friday.
This drop in prices came after the global holdings in bullion-backed exchange-traded funds eased on April 27; after 25 days of net inflows based on the data that was compiled by Bloomberg. Howie Lee, an economist at Oversea-Chinese Banking Corp, stated:
“The risk sentiment continues to improve as more and more economies make plans to reopen businesses gradually. The Fed and ECB are expected to have little market-moving announcements this week. It will be premature to think the worst is over, though, and for that reason; I think gold prices may continue to see support.”
In the other precious metal markets, silver and platinum declined while palladium gained.