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Gold poised for back-to-back weekly slump with dollar rampant

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Gold is taking a backseat to the greenback as the preferred haven in stressed markets.

GOLD is poised for the first back-to-back weekly loss since September as the coronavirus crisis pummels appetite for risk and drives the dollar to an all-time high, with some investors selling the traditional haven to raise cash to navigate the extreme volatility shaking global markets.

A halt in the dollar rally on Friday gave some respite to gold, though the metal is still lower this year despite emergency rate cuts and asset-purchase programmes by central banks globally, including moves by the Federal Reserve.

While more stimulus plans may be on the way, traders are concerned how long the economic downturn will last as the pandemic spreads in the United States and Europe, with the number of dead in Italy surpassing the tally in China.

"Gold provided what it should during times of crisis, a form of insurance to cash in when liquidity was required," Peter Grosskopf, chief executive officer at Sprott Inc., said in a note.

"Gold has lousy margin rates for levered funds and is, by default, one of the first assets to be cashed in when leverage is reduced. We believe that long-term investors, not subject to margin pressures, will be similarly rewarded by owning gold at this time."

Bullion typically moves inversely to the US currency, which surged to a record before weakening on Friday. The latest efforts by governments and central banks to mitigate the damage from the outbreak has done little to calm stressed markets, with gold taking a backseat to the greenback as the preferred haven.

Gold was trading 2.4 per cent higher at US$1,506.53 at 7.29am in London as the Bloomberg Dollar Spot Index halted an eight-day rally. The metal is down 1.5 per cent this week after an 8.6 per cent fall last week, the most since 1983.

Still, while bullion is now 0.7 per cent lower over 2020, that's a far smaller decline than seen in global shares as well as other commodities such as crude oil and copper. Brent has more than halved this year, and a gauge of global equities has shed 28 per cent.

Among the other main precious metals, silver rose 5.2 per cent to pare the week's loss to 13 per cent. Platinum jumped as much as 8 per cent, although prices are still set for a record weekly loss. Palladium advanced 4.2 per cent. BLOOMBERG