Yesterday was not a good day for the gold markets, as ample volatility took a toll on the price segment. The biggest daily decline in 30 days has been recorded, but the market is showing signs of a rebound already.
The Gold Price Momentum Soured a bit
Following the coronavirus crisis impact, market volatility has become the name of the game for all assets and commodities. Gold and other precious metals are no exception by any means, as yesterday has shown in rather clear fashion.
More specifically, the gold market noted a very steep dropoff, According to experts, it is the biggest single-day decline in the past month, further confirming as to how the markets remain uneasy for now. Due to this momentum, the gold price briefly dipped below $1,700 for the first time in a while.
Coinciding with this bearish momentum, the value of gold futures decreased as well, indicating that the near-term outlook will not necessarily improve all that much. For now, futures prices remain above $1,700 per ounce, but just barely. The spot gold price rose to reach this target as well, further indicating that some volatility remains on the agenda for the coming few days.
What is Driving the Bearish Momentum?
Financial assets tend to stand or fall based on the overall global developments. Whether it is politics, finance-related, technology news, or even a global pandemic, all markets are directly influenced by the smallest ripple in the pond.
A first factor that comes to mind is the economic outlook following the coronavirus crisis. As most countries begin to resume everyday life – although restrictions still apply – there appears to be less demand for safe-haven assets. Considering how scientists worry about a potential second wave of infections, however, that situation may come to change at some point in the future.
Secondly, there is a significant stock market recovery in Asia to take note of. Albeit this is infused by stimulus packages – which will trigger economic ruin in the long run – it has lifted investors’ spirits, for the time being. With Asian shares hitting a two-month high, the appeal of gold and silver will undoubtedly take a hit.
When equity markets start to show bullish momentum, being bullish on gold or other metals becomes increasingly difficult. That doesn’t mean that the price of these assets will collapse overnight, but some sort of retrace is always to be expected.
Interestingly enough, the decrease in gold value coincides with a decrease of the dollar index. There is less international demand for the greenback due to global economic recovery. That being said, today’s decision by the ECB can easily trigger an opposite effect, depending on what is announced exactly.