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Gold Retreats After Huge Weekly Gains on Coronavirus Fears

March 6, 2020 at 17:43 by Andrew Moran

Gold futures are slightly retreating at the end of a turbulent trading week in global financial markets. Despite the drop on Friday, the yellow metal recorded impressive gains in recent sessions as prices eye the key $1,700 market next week. With the coronavirus unlikely to go away anytime soon, traders will continue to seek out safe-haven assets. How high can the precious metal go?

April gold futures tumbled $3.80, or 0.23%, to $1,664.20 per ounce at 16:13 GMT on Friday on the Comex division of the New York Mercantile Exchange. Gold will post a weekly surge of about 5%, lifting its year-to-date jump to 9.5%. This is the best weekly performance in nine years.

Silver, the sister commodity to gold, is also sliding to close out the trading week. May silver futures fell $0.23, or 1.32%, to $17.165 an ounce. The white metal will also report a weekly boost of 2.7%, paring its 2020 loss to 4.1%.

But why would gold slump during a market crash when the appetite for gold, the US dollar, and government debt is ferocious? The primary thing is that a lot of investors are on margin with plenty of speculators leveraged. Since they need to liquidate, they sell off assets like gold and related vehicles so they have green in their trading accounts.

The other detail that may have contributed to gold’s drop is the data.

On Friday, the US government reported that the economy added 273,000 new jobs in February, beating market forecast of 175,000 jobs. The unemployment rate dipped to a 50-year low of 3.5%. Employment gains for December and January were also revised upward by a total of 85,000 positions.

Trade was also in focus as the federal deficit decreased 6.7% in January to $45.3 billion with imports plunging 1.6% to $253.9 billion and exports declining 0.4% to $208.6 billion.

Metal commodities spiked on Wednesday when the Federal Reserve implemented an emergency 50-basis-point cut to interest rates, lowering the benchmark fed funds rate to a target range of 1% and 1.50%. Other central banks have also cut rates, a move that will inevitably spur demand for bullion. Everyone is reacting to Covid-19 that has killed more than 3,300 people, including a dozen in the US. The number of global confirmed cases has topped 100,000 and health authorities say it will get worse before it gets better – China is even witnessing an incremental increase in new cases.

A lower US dollar capped gold’s loss on Friday. The US Dollar Index, a measurement against a basket of currencies, lost 0.89% to 95.97, from an opening of 96.61. A weaker buck is good for dollar-denominated commodities because it makes it cheaper for foreign investors to purchase.

In other metal markets, April copper futures shed $0.0265, or 1.03%, to $2.5465 a pound. April platinum futures picked up $33.40, or 3.86%, to $899.10 an ounce. April palladium futures declined $29.50, or 1.19%, to $2,439.89 per ounce.

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