Price of Gold Fundamental Weekly Forecast – Longer-Term, Central Bank Rate Cuts Will Underpin Gold

Despite turmoil in the U.S. equity markets and a plunge in the benchmark 10-year Treasury Note to a record low, gold futures finished sharply lower last week as coronavirus worries drove panic-stricken investors to liquidate assets across the board.

The weakness in gold was not a surprise. The market was showing weakness earlier in the week even as the coronavirus spread outside of China. The size of the sell-off, however, was quite shocking. The precious metal saw sharp price swings last week after hitting a seven-year high on Monday. Additionally, the market posted its biggest weekly decline since November with most of the loss taking place on Friday.

Last week, April Comex gold futures settled at $1566.70, down $82.10 or -4.98%.

Some of the weakness in gold could be attributed to complacent investors. Most likely bought gold with no downside protection because they had been convinced by brokers that it is a safe-haven asset that goes up when there is turmoil in the world. The massive loss in the market, despite the steep drop in stocks and yields, only proves that gold is an investment and people buy it when it’s cheap and sell it when it’s expensive. It does not offer the same projection as a Treasury bond or the Japanese Yen.

Traders are saying that professionals likely sold gold to raise cash to cover margin calls and losses in stocks and other markets. If gold really offered protection against losses in traditional assets, the professionals would’ve held on. Instead, the sold gold to non-professional speculators who were left holding the bag at 7-year highs.

Weekly Forecast

If you approach gold as an investment then you should have the upper hand on those investors who buy it because they think their money is going to be safe against an economic disaster.

The fundamentals are still bullish and with the Reserve Bank of Australia (RBA) likely to cut rates on Tuesday and the U.S. Federal Reserve expected to cut rates later in the month, the market is likely to remain underpinned over the near-term. It just has to reach a value area that will be attractive to investors. Furthermore, conditions have to calm in the stock market before gold buyers will feel confident enough to stick their investment toe back into the market.

The big takeaway from last week’s plunge is that gold is not a safe-haven asset. It tends to go up when interest rates come down, plain and simple. However, from time to time, it will go down during the worst of times to fund positions in other markets.

If the worst of the selling is over in the equity markets then look for gold to begin building a support base, or even rally this week on short-covering and speculative buying. If stocks continue to plunge then look for further selling pressure.