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Gold futures significantly cut their earlier losses in Monday dealings, as short covering kicked in following an earlier drop of more than 4% for the precious metal.
Traders reacted to a limit-down tumble for benchmark U.S. stock indexes at the opening bell after the Federal Reserve’s emergency decision Sunday to slash rates and implement $700 billion in asset purchases.
Traders were “exiting everything which is giving them profit,” said Chintan Karnani, chief market analyst at Insignia Consultants, with a technical selloff triggered when gold fell below $1,500.
However, gold’s inability to fall below key support at $1,440 “resulted in short covering and subsequent buying in gold,” including good physical demand in Asia, he told MarketWatch.
Gold for April delivery GCJ20, -0.70% on Comex was down $12.80, or 0.8%, to $1,503.90 an ounce after dropping by more than 4% from Friday’s settlement to touch an intraday low at $1,450.90. May silver SIK20, -10.83% tumbled $1.50, or 10.3%, to $13 an ounce following an intraday low at $11.77.
Gold rallied late Sunday after the Fed, in a surprise Sunday night decision, slashed its benchmark interest rate nearly to zero and implemented a bond-buying program, known as quantitative easing, of at least $700 billion. But gains soon gave way to losses as equities failed to find support in the wake of the move.
“There is more or less a global lockdown” in the wake of the spread of COVID-19, said Kanarni, in an early Monday market update. “There was a mad rush for cash. Traders and investors alike sold everything which could generate cash.”
U.S. stocks on Monday triggered circuit breakers that temporarily halted trading for 15 minutes. The Dow Jones Industrial Average DJIA, -6.84% was down by more than 1,700 points, or 7.6%, at 21,431 in Monday dealings.
While looser monetary policy and pressure on assets perceived as risky, like stocks, would both normally be seen as a positive for gold, the metal has seen weakness in recent sessions on apparent forced liquidation that has seen leveraged investors dump positions en masse.
Despite the “explosive levels of risk aversion,” investors seem to be “adopting a ‘sell what you can mentality’ to cover steep losses in stocks and this has certainly left gold in the direct firing line,” Lukman Otunuga, senior research analyst at FXTM, told MarketWatch. “The precious metal’s fate seems to be tied to global stocks, with further losses expected as stock market plunge deeper into the abyss.”
Read: Why gold’s plunge proves it’s a safe haven asset
Other metals dropped sharply on Comex, with May copper HGK20, -3.19% down 2.8% at $2.396 a pound. April platinum PLJ20, -10.16% lost 9.8% to $671.10 an ounce and June PAM20, -2.52% declined by 5.7% to $1,422.50 an ounce.
Read: Here’s how copper has weathered the COVID-19 economic storm
