Gold prices dropped nearly 2% to a near two-week low on Tuesday as investors scuttled for cash to cover losses in other asset classes driven by a crash in oil markets as the coronavirus outbreak wrecks economies.
Spot gold slipped 1.3% to $1,671.68 per ounce, having earlier hit a low since April 9 at $1,659.68. U.S. gold futures settled 1.4% lower at $1,687.80. Gold price witnessed a low of $1,576 per ounce on Mar 31. After that it rallied to $1,788.40 on Apr 14.
Bullion has moved in tandem on occasion with equities recently, especially as sharp sell-offs in wider markets forced investors to sell precious metals to meet margins calls and cover their losses. As the global macroeconomic conditions worsen due to the chaos surrounding the coronavirus outbreak and gloomy outlook for oil markets – investors may continue to flock to safety, looking for other assets besides gold.
Recently, gold has been facing tough competition from another safe-haven, the dollar, in which it is priced. In times of political and financial uncertainty, a stronger dollar makes gold expensive for holders of other currencies.
The decline in gold prices along with equities was partly attributed to the fact that investors sold gold to meet the margin money in equities which were wiped out. Government-mandated plant and mine closures and lockdowns have also created serious issues for gold mining companies.
Lower gold prices may not be good news for junior gold miners but so far gold stocks have not fallen sufficiently to have a long term effect on the market. Gold miners like Newmont Goldcorp (NEM) were able to raise its dividend by 79%. Bank of America’s gold equity analysts dubbed Newmont its top ”senior gold producer pick,” and also placed Buy ratings on Agnico Eagle Mines (AEM) and Barrick Gold (GOLD).
As gold miners try to offset the financial impact of operation shutdown, lberta and B.C. securities regulators are warning investors about the “aggressive promotion” of Canadian junior gold mining firms. Canadian junior gold miner Crestview Exploration Inc., which is focused on exploring for gold in Nevada, was singled out in a joint news release. The commissions warned investors against a mailout with no return address that says in red letters: “CORONAVIRUS AFFECTING MARKETS: READ NOW.” The company, meanwhile, says in a statement it did not send the mailouts, nor did it pay for or request the analyst’s endorsement.
A wave of stimulus measures by central banks has been introduced to ease economic damage from the new coronavirus pandemic. This in addition to inflows into exchange traded funds (ETF) is likely to keep gold supported, analysts said.