Gold regains status as safe haven

GOLD ended last week with the largest intra-day fall in price since 2013 - a drop of 4.6 per cent. This was despite a global equity meltdown and Treasury yields hitting all-time lows. The spread of the novel coronavirus heightened concern that global economic growth would be hit and demand for precious metals would fall.

Gold prices suffered as the United States authorities highlighted that Covid-19 would cause schools to shut and disrupt public transportation. Gold was also sold down as traders took profit to cover losses in the US dollar and equity markets. The large speculative positioning in derivatives did not help as long positions made an exit from the market.

A life line was thrown to gold when the US Federal Reserve last week cut interest rates by 50 basis points, while other central banks also reduced interest rates. Bond yields fell dramatically. These events reinforced the role of gold as a safe-haven asset, and gold prices retraced back to settle at the highest on Thursday. Meanwhile, the US dollar weakened together with Treasury yields and equity prices, all factors supportive of the gold market.