As stocks gyrate, investors scoop up tons and tons of gold
It doesn't seem to matter anymore whether global stocks are rising or falling -- investors just keep snapping up more gold.
Holdings in gold-backed exchange-traded funds surged by 55 tons in the previous three days, accounting for almost a third of year-to-date inflows, according to a preliminary tally by Bloomberg. As a haven asset, demand for gold tends to move in the opposite direction from stock markets. Yet this week's ETF buying continued Tuesday even as equities bounced following Monday's rout.
"Gold continues to provide a safety net as financial markets tumble," Stephen Innes, chief Asia market strategist at AxiCorp, said in a note. "It just feels flat-out comfortable owning gold in this environment."
Spot gold rose on Wednesday as U.S. stock futures fell and the dollar weakened, after the U.S. administration failed to offer details on a stimulus package to combat the economic impact of the coronavirus crisis.
An emergency interest rate cut by the Bank of England also added support to bullion, while Italy plans to spend 25 billion euros ($28.3 billion) in measures to help combat the economic effects of the outbreak.
Gold holdings in ETFs rose 170.5 tons this year through Tuesday, the latest data show. Buying is being stoked by recession fears because of the coronavirus outbreak and a growing wave of crisis monetary easing.
Spot gold was up 1% at $1,665.67 an ounce by 11:05 a.m. in London. Spot silver and platinum also advanced, while palladium fell for a third day.
Investors' focus now turns to the European Central Bank and its policy meeting tomorrow, with President Christine Lagarde warning of an economic shock unless leaders act urgently. The Federal Reserve meets next week and is also seen paring rates, further aiding gold's appeal.
Still, gold may face more headwinds on its way up, given that the metal's price volatility and average trading ranges remain elevated, said Ole Hansen, head of commodity strategy at Saxo Bank.
"In order to revisit and potentially break above $1,700, we probably need to see a Europe-style escalation of the virus threat to the U.S.," Hansen said.
