Gold rises but pares gains on cash hunt

BENGALURU • Gold prices jumped in early trade yesterday after another emergency rate cut by the United States Federal Reserve, before paring gains as some investors sold the metal for cash amid a sell-off in equities.

Spot gold was up 0.2 per cent at US$1,532.12 per ounce by 0726 GMT (3.26pm Singapore time), having risen as much as 2.8 per cent earlier.

The metal fell 3 per cent last Friday. US gold futures rose 1 per cent to US$1,531.60 per ounce.

Prices rose initially due to the surprise Fed rate cut, said CMC Markets analyst Margaret Yang.

"The market is very indecisive and there are divergent opinions. Investors are now dumping everything. They just want cash," she added.

The US central bank slashed rates back to near zero, and restarted bond buying to help put a floor under a rapidly disintegrating global economy amid the escalating coronavirus pandemic.

The Fed's rate cuts and restarting of quantitative easing are positives for gold, but "we're in an unconventional time and theory might not apply in a time of high volatility and divergence", Ms Yang said.

Mr Edward Moya, a senior market analyst at Oanda Corp, said that prices will ultimately benefit from the wave of global monetary and fiscal stimulus.

"Gold should grind its way back above US$1,600 an ounce after we see all the other central banks ramp up their efforts this week," he said.

Lower rates typically boost the appeal of gold, which does not offer interest.

The benchmark US 10-year Treasury yields fell, resuming its march towards an all-time low touched last week, while the safe-haven yen rose from a two-week low against the US dollar.

A widespread pandemic causing a global shutdown, emergency rate cuts and falling US dollar should be "nirvana for gold", said Mr Jeffrey Halley, a senior market analyst at Oanda, in a note.

"Unfortunately, these are not normal times and the usual rules don't seem to apply any more," he said.

Generally, lower interest rates reduce the opportunity cost of holding non-yielding bullion, and weigh on the dollar, making greenback-denominated gold cheaper for investors holding other currencies.

The Fed's latest cut could support gold in the medium to longer term as it suggests the economy is in a downtrend and the negative impact of coronavirus is likely to continue, said Mr Hareesh V, head of commodity research at Geojit Financial Services.

In volatile trade yesterday, palladium fell 1 per cent to US$1,788.76, having fallen more than 5 per cent earlier. Platinum slipped 0.8 per cent to US$755.50 per ounce, while silver fell 1.5 per cent to US$14.45.


A version of this article appeared in the print edition of The Straits Times on March 17, 2020, with the headline 'Gold rises but pares gains on cash hunt'. Print Edition | Subscribe