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Gold prices finished higher on Tuesday for the first time in six sessions, with gains for the metal coinciding with an announcement that the Federal Reserve was establishing a lending facility to assist U.S. corporations in rolling over short-term debt, a key area of the market that had frozen during the coronavirus pandemic.
The Fed on Tuesday established a commercial-paper funding facility to improve liquidity to provide short term funding for businesses strapped for cash due to the disruptions to trade and travel caused by efforts to combat the epidemic. In a statement, the Fed said it was acting to provide credit “that will support families, businesses and jobs across the economy.”
The central bank’s latest action and “prospects that helicopter money is here,” combined to give gold a boost, said Edward Moya, senior market analyst at Oanda.
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The U.S. is ‘finally seeing desperation from the Trump administration and that could be enough to temporarily take the panic out of markets.’
The U.S. is “seeing desperation from the Trump administration and that could be enough to temporarily take the panic out of markets,” Moya told MarketWatch. “Near-zero interest rates, massive stimulus, and a fiscal response that includes direct payments and tax deferrals, should continue to drive gold higher.”
The Trump administration is backing a fiscal stimulus package of up to $850 billion that involves a payroll tax cut and aid for airlines, according to published reports.
Against that backdrop, April gold GCJ20, +2.90% tacked on $39.30, or 2.6%, to settle at $1,525.80 an ounce on Comex. On Monday, prices settled at the lowest since December of last year.
Also on Comex, May silver SIK20, -1.49% briefly moved higher after the Fed news, then turned lower again to settle at $12.495 an ounce, down 32.1 cents, or 2.5%. Prices based on the most-active contract settled at their lowest since late April 2009.
The ratio of gold to silver is around the highest it’s been in over 5,000 years, according to Marshall Gittler, head of investment research at BDSwiss.
Read: Gold is setting records dating back over 5,000 years—against silver
The recent selloff for gold stemmed “from the continued scramble for cash after further liquidity concerns showed disruptions in the funding markets are not going away despite the Fed’s recent actions,” said Moya. He had expected gold to resume “its safe-haven status as the global punchbowl of monetary and fiscal stimulus is quickly expanding.”
In a surprise move on Sunday, the Fed cut interest rates to zero and took other emergency steps to shore up the hit economy from the spread of the coronavirus.
Read: Fed injects a big dose, but it’s got the wrong medicine for the coronavirus pandemic
The Fed move, however, failed to curb losses in the stock market, prompting traders to sell gold in their scramble for cash, analysts said. The Dow Jones Industrial Average DJIA, +3.44% posted a 3,000-point loss on Monday, but benchmark U.S. stock indexes moved higher in Tuesday dealings as gold futures settled.
“If the general equities stage a significant rally next days, which it looks like, gold may lag a bit at first as investors chase that and things appear better,” said Peter Spina, president and chief executive officer at GoldSeek.com. “That could keep gold in the $1,500’s.”
“But I do strongly believe there is a good chance of a huge equity rally starting right now. A very large bounce-rally,” he told MarketWatch. “That may take some luster from gold for a little bit, but certainly gold has all the fundamental reasons to move much higher in the coming months.”
Some data in the U.S. are starting to show the effects of the virus on economy. Retail sales slumped 0.5% last month, the government said Friday. That’s the biggest drop in a year. Meanwhile, industrial production showed some strength just before the coronavirus outbreak, with data from the Fed showing a rise of 0.6% in February after a revised 0.5% drop in the prior month.
Among other metals, May copper HGK20, -3.18% shed 3.3% to $2.3135 a pound. April PLJ20, +0.62% reversed earlier losses to gain $7.60, or 1.2%, to $665.30 an ounce, but June palladium PAM20, -2.91% lost $4.50, or 0.3%, to $1,509.60 an ounce.
See also: Here are the industries that could get coronavirus aid from the U.S. government
