Future gold contracts decreased sharply on Wednesday (March 18) to the lowest level since December 2019, shows that the flight to investors’ liquidity regions will continue to put pressure to the traditional safe-haven of precious metals when US stocks saw a plummeting session of guests due to concerns about the impact of the COVID-19 epidemic, MarketWatch reported.
“The market has seen panic selling action more in any liquid asset,” said Jeff Wright, executive vice president at GoldMining Inc.
Closing the session on Wednesday, the gold contract delivered in April dropped 47.90 USD (equivalent to 3.1%) to 1,477.90 USD/oz, the lowest closing level since December 2019, data from FactSet showed.
According to CNBC, also on Wednesday, the gold contract lost 2.8% to 1,485.06 USD/oz.
US stock indexes decreased sharply on Wednesday after recovering on Tuesday (March 17). The US stock index futures fluctuated for the night. The strong sell-off in stocks and other risky assets has tended to drag gold weakening in recent weeks, despite the need for the safe haven of precious metals.
The strong momentum of the USD is also a factor, Daniel Briesemann, Analyst at Commerzbank noted. The dollar reached a 3-week peak on Tuesday (March 17) in the content of winning the dollar outside the US worldwide. It is known that the stronger dollar can negatively affect commodities pegged to the greenback, making them more expensive for users of other currencies. The ICE U.S. Dollar Index – a measure of the dollar’s performance compared to the other six major currencies – increased 1.9% on Wednesday.
The increase in government bond yields is also seen as a barrier to gold, Mr. Briesemann said. Higher interest rates increase the cost opportunity of holding gold because precious metals are not profitable. 10-year US Government bond yield plus 15.4 basis points to 1.12%.
Data released on Wednesday showed that new housing construction in February 2020 decreased 1.5% compared to January 2020 to 1.6 million.
The meeting scheduled to take place on Wednesday of the Federal Open Market Committee (FOMC) was canceled due to restrictive gathering during the COVID-19 season, but the US Federal Reserve (Fed) in this week lowered interest rates to nearly zero, restarting the bond purchase program to provide liquidity to the monetary market in the short term.
Among the metals on the Comex, the silver contract delivered in May dropped 5.8% to 11,772 USD/oz. May contract for delivery slipped 7% to 2,151 USD/lb.
Platinum contract in April plunged 9.1% to 605 USD/oz. The palladium contract delivered in June decreased by 6% to 1,419.80 USD/oz.