Gold slides below $1,700 as investors look everywhere for cash

Image courtesy of Barrick Gold.

Gold investors are bracing for increased market anxiety as the worst sell-off in oil since 1991 spurred a massive slump in equities.

Bullion jumped above $1,700 an ounce when markets opened in Asia before pulling back as money managers cashed in gains to cover losses in other assets. A 30-day measure of expectations for price swings for the metal climbed to the highest since December 2015.

While gold is viewed as a classic haven popular during times of turmoil, it’s been a bumpy move up in the past month. The need to raise cash has prompted some investors to sell the metal. At the same time, increasing bets that the Federal Reserve will cut borrowing costs are boosting the appeal of the non-interest-bearing asset.

The clearest sign that investors are still bullish: gold-backed exchange-traded funds are continuing to attract cash

“In terms of volatility, it is normal especially when the market is expecting the March Fed meeting to be a live one,” Naeem Aslam, chief market analyst at Ava Trade, said by email Monday. “The fact that the price has broken the 1700 mark, it leads us to believe that there are strong chances for the price to cross this level again.”

Gold futures for April delivery jumped as much as 1.9% to $1,704.30 an ounce, the highest for a most-active contract since December 2012. The metal gave up most of the rally to settle at $1,675.70 by 1:32 p.m. on the Comex in New York.

Other precious metals fared worse than gold.

  • Silver fell 1.2% to $17.054 an ounce on the Comex
  • Platinum lost 3.7% and palladium sank 1.4% on the New York Mercantile Exchange

Some analysts expect gold to keep climbing. UBS Group AG’s wealth-management unit predicts prices could rally toward $1,800 within weeks, while Citigroup Inc. sees the metal surging to $2,000 by the end of 2021.

With markets getting hit from the virus-driven slowdown and tanking crude, all eyes are on what the European Central Bank and Federal Reserve will do to defend inflation expectations, said Wayne Gordon, executive director for commodities and foreign exchange at UBS. On Monday, the Fed lifted the amount of temporary cash it’s willing to provide markets amid risk of a worldwide credit crunch.

The clearest sign that investors are still bullish: gold-backed exchange-traded funds are continuing to attract cash. Bullion funds increased last week by the most since September, according to data compiled by Bloomberg.

Markets are concerned that “we could see a more ugly situation before things get better, which of course is good news for gold,” said Michael McCarthy, chief market strategist at CMC Markets in Sydney.

(By Justina Vasquez and Elena Mazneva, with assistance from Ranjeetha Pakiam)

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