Markets fear just how much the COVID-19 outbreak could hurt the U.S. and Europe — the next two regions that will be hit the hardest by the virus. And as the Federal Reserve looks increasingly ready to cut rates down to zero all in one go this week, it might be a great opportunity to buy gold, according to analysts.
Gold was not able to escape the massive market sell-off this week, which accelerated on Thursday as U.S. stocks posted their worst day since 1987. Gold fell victim to margin-calls, as investors were forced to sell their gold positions to cover for losses elsewhere.
“We suspect that margin calls and losses in other markets are driving investors to search for cash, and gold happens to be the liquid position they are choosing to cash out on,” said RBC Capital Markets commodity strategist Christopher Louney.
Gold continues to be stuck in a bit of a liquidity selling regime, said TD Securities commodity strategist Ryan McKay.
“When we see terrible days in equities like we saw on Monday and Thursday, we tend to see gold trade weaker along with equities because funds are selling their gold to cover margins and offset losses,” McKay noted.
Gold is down more than 9% on a weekly basis, which could lead to the most significant weekly loss since 2011. At the time of writing, April Comex gold futures were last at $1,520.80, down 4.37% on the day.
But the market sell-off could be far from over, said Capital Economics chief commodities economist Caroline Bain.
“Our markets team expects equity markets to continue to fall until it becomes clear that maybe the worst of the virus has passed. We could see a further drop in the price of gold over the next couple of weeks just because it is so liquid and people need cash,” Bain said Friday.
Source : Kitco