Gold stages fightback to underline safe-haven status
Copper, oil and equities also gain amid rising expectations of central banks taking action
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Gold has a long-standing reputation as a go-to asset in times of stress. Its big slump last Friday was put down to investors' forced selling to cover losses elsewhere, and analysts do not see that as a sign of loss in faith in its role.
PHOTO: REUTERS
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After getting caught up in last week's punishing virus-driven sell-off, gold rebounded yesterday to refresh its haven credentials. The metal advanced after a weekend of negative developments, including a surge in coronavirus cases globally.
With rising expectations that central banks will now act, assets including copper, oil and equities also gained.
Last Friday's big slump in gold was put down to investors' forced selling to cover losses elsewhere.
"Gold's fundamentals remain overwhelmingly strong and any near-term price corrections aren't significant in terms of the bigger picture," said MineLife senior resource analyst Gavin Wendt. The bullion's retreat last week "was nowhere as bad as the 10 per cent-plus drubbing equity markets took, so it can be argued gold has passed its safe-haven challenge", he said.
Bullion has a long-standing reputation as a go-to asset in times of stress. That said, there is a chance that investors sell gold during extreme turmoil, something seen late last week and, before that, for a period in the 2008 financial crisis.
Investors were "cashing out to cover losses and meet margin calls in other markets", RBC Capital Markets said in a note, referring to Friday's drop. "We do not view this as a loss in faith in gold's role as a 'perceived safe haven' or a fundamental shift in the attitude towards gold."
Spot gold climbed 1.5 per cent to US$1,608.91 an ounce by 11.08am in London yesterday.
Last Friday, prices fell as much as 5 per cent, the biggest intraday drop since 2013.
All other major precious metals also rose yesterday, led by silver.
Investors are assessing gold's outlook amid signals that the United States Federal Reserve will join other central banks in easing policy. Fed chairman Jerome Powell opened the door to a cut at the March 17-18 meeting by releasing a rare note last Friday, pledging to "act as appropriate" to support the economy.
The Bank of Japan issued an emergency statement as the week began, saying it will "strive to provide ample liquidity".
While gold prices sank last Friday, investors continued to buy into bullion-backed exchange-traded funds (ETFs). The worldwide total expanded 8.6 tonnes to a record 2,634.4 tonnes, according to an initial tally compiled by Bloomberg.
"The resilience of gold ETFs is encouraging," UBS Group strategist Joni Teves said in a note. "Gold looks attractive here as a hedge against the backdrop of negative rates and acute uncertainty that is likely to persist."
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