Price of Gold Fundamental Daily Forecast – Dragged Down by Falling Stock Market

Gold prices are down on Wednesday as concerns over the global economic impact form the coronavirus outweighed stimulus measures by the United States and other major central banks and governments, encouraging investors to dump most assets for the safety of cash.

Gold is currently mimicking the price action in the stock market. This correlation is being driven by the fear of margin call selling. As stocks plunge leveraged investors are being hit with margin calls. Due to liquidity issues, investors have to turn to selling gold in order to generate the cash needed to meet those margin calls.

Rising Treasury yields are helping to boost demand for the U.S. Dollar. Furthermore, global investors are also buying dollars as a hedge. This is putting further pressure on demand for dollar-denominated gold.

At 11:01 GMT, April Comex gold is trading $1497.90, down $27.90 or -1.83%.

Other Reactions

“People are expecting a recession to come … so, there is panic selling across energy, base and precious metals,” said Jigar Trivedi, a commodities analyst at Anand Rathi Shares and Stock Brokers in Mumbai.

“Liquidity pumping from central bankers and policy changes are not working in favor of the markets. We’re looking at an economic solution to the current epidemic, but the epidemic itself is the root cause. Unless there is a vaccine, the (panic in) markets will not stop.”

Michael McCarthy, chief strategist at CMC Markets said, “The fact that equity markets are still falling is signaling deteriorating global sentiment, which means more investors are going for cash.”

“Globally, we are lengthening our expectations of how long the economic interruptions from the virus will last and that’s another reason driving people to cash.”

Daily Forecast

At this time, you can throw traditional thinking out the window because investors are not flocking to gold as a safe-haven. They are selling it to raise cash. Although some will argue that the ability to convert it to cash means it is a safe-haven. I won’t argue with that assessment.

What I mean is that falling stock prices are no longer driving investors to buy gold, they are driving investors to sell gold. Compounding the issue is rising Treasury yields and a stronger U.S. Dollar. Both tend to weigh on gold prices. At least that line of thinking is still valid.

Over the short-run (I’m being conservative), gold is likely to follow the movement in the stock market. Not tick for tick, however. Direction-wise, yes. But we may see some wild swings in gold relative to the movement in the stock market because of thin-volume.