On June 9, 2020, gold staged a significant rebound from its daily lows of $1692.23. The precious metal ran above the $1700 psychological mark as investors took off in search of safety. Investors turned to haven assets amid the escalating row between China, and Australia took center stage.
Gold Had Plunged
The steep plunge in gold prices in the past week took markets by surprise. However, most analysts and experts believe that the sharp correction was expected. They said that the drop happened due to more economies around the world recovering from the coronavirus-related lock downs. Also, an improving high-frequency of data sets raised appeal for the risky asset classes.
Nonetheless, they expect the recovery to continue as a weak dollar and that US-China trade tensions are also viable for gold in the near term. The precious metal enjoys an inverse relation with equities that have been rallying lately, hoping that economic recoveries will be faster than expected.
A significant drop in the US unemployment rate last month and strong PMI readings in some of the major Asian economies have weakened the have appeal of gold. Furthermore, the lockdown restrictions have lifted mostly, with shopping malls and eateries opening in many parts of Asia.
That move has eased worries over the effect of the pandemic on the economies. In that context, the appeal for gold has dwindled. One analyst said:
“We are expecting some profit booking in gold as safe-haven demand fades out. From a weekly perspective, the yellow metal may test the $ 1,690 per ounce mark in the international market.”
Data from the United States last week indicated that unemployment in the country dropped to 13.3% in May from 14.7% in April. A total of 2.5 million jobs were added in May, suggesting that businesses are quickly recalling workers as states reopen their economies.
“We note that economic data has generally been better than widely expected, especially in the US and China, as indicated by Economic Surprise indices. US payrolls on Friday were strong and beat expectations, and this could lend some further support to the risk-on rally.”
A Japanese brokerage explained that policy support continues to act as a dominant driver with many other packages announced in the past several weeks, including Germany. The European economic powerhouse announced a second package worth 130 billion Euros. Additionally, a second supplementary budget worth $1.1 trillion is expected to be passed in Japan in the coming days.
The European Central Bank (ECB) has also boosted its pandemic emergency purchase program (PEPP) by 600 billion Euros; against the earlier estimates of 500 billion Euros.
According to the World Gold Council, gold-backed exchange-traded funds (ETFs) added around 623 tonnes of the metal. The added amount is estimated to be worth $34 billion and added between January and May. It exceeded every full-year increase ever recorded in the five months.
In the meantime, the United States benchmark stock indexes traded higher as the gold futures settled. Investors have shifted their focus to the Federal Reserve that is scheduled to release its updated policy statement at the end of its two-day meeting on June 10.