Gold Soars to US$1,700, Then Slides as Markets Swan Dive

Tanking energy and equity markets drove gold above US$1,700 per ounce late Sunday (March 8), its highest price in seven years. 

Gold climbed to US$1,700.90, a high unseen since December 2012, before slipping to US$1,661.90 on Monday (March 9) as investors cashed in the yellow metal to cover margin calls.

Safe haven demand for gold is expected to propel the metal in the short term as fears of a global economic downturn are amplified with every new COVID-19 coronavirus case that is reported.

“It’s a little bit surprising with gold not having done better — we did hit the US$1,700 mark in early trading but it has come down and it seems to be a sale across all assets,” Jonathan Butler, a Mitsubishi (TSE:6503) analyst, told Reuters.

Butler noted that the decrease was likely brought on by margin calls from other asset classes and commodities, which resulted in a liquidation in gold.

Stock markets around the world tumbled on Monday on the back of a crash in oil prices, which fueled the ongoing decline in the global economy due to fears of COVID-19.

“The mantra right now is you can forget about return on investment, it’s return of investment — will I get my money back? That’s all investors care about,” Alex Tedder, head of global equities for Schroders, told the Financial Times.

As markets continue to react to the threat of the coronavirus and the oil price war, the yellow metal could move as high as US$2,000 — a number some analysts believe is modest given the potential ripple effect the Chinese economic disruption will have.

“I think we’re heading into a major repricing of gold into the US$2,000 to US$3,000 range, which now I’m even a stronger believer in with the uncertainty that the coronavirus is injecting,” John Kaiser of Kaiser Research said during an interview with the Investing News Network (INN) last week.

Gold spent the majority the trading day below US$1,680, but it is likely to still get a boost from last week’s emergency interest rate cut announced by the US Federal Reserve.

This was a move that many of the analysts and market watchers INN spoke with at the Prospectors & Developers Association of Canada convention were critical of, including Kaiser, who wondered how many interest rate cuts the Fed has left.

“We’re going to be at 0 percent interest rates, and then what?” he said. “That hurts all the savers, the retirees who are now getting zero on their savings. I don’t think this is the solution to the problem that we’re facing.”

Gold was trading for US$1,677.60 as of 3:05 p.m. EDT on Monday.

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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.