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Gold Price Drop 'A Buying Opportunity Before $1900' as Covid 'Second Wave' Hits Stock Markets

Monday, 6/15/2020 14:58
GOLD PRICES dropped Monday in London as European stock markets and crude oil tumbled amid widening reports that a second wave of the deadly novel coronavirus pandemic is taking hold, writes Atsuko Whitehouse at BullionVault.
 
Gold bullion prices for London settlement fell 1.1% to $1711 per ounce as the US Dollar rallied on the FX market, curbing the precious metal's earlier 2.6% gain from last week – its biggest jump in 10.
 
The Dollar Index – a measure of the US currency's value versus its major peers – climbed 0.5% Monday morning from its multi-month lows and gave some back by lunch time. 
 
Major government bond prices rose, pushing interest rates lower, as European stocks lost 0.6% on the Stoxx Europe 600 index, paring an earlier drop of as much as 2.6%.
 
Japan's benchmark Nikkei 225 closed 3.5% down for the day and South Korea's Kospi lost 4.5%, more than twice the drop in Hong Kong's Hang Seng while the Shanghai Composite declined 1.0% despite China imposing strict new lockdowns across capital city Beijing after a jump in new cases of Covid19.
 
The United States saw more than 25,000 new cases reported on Saturday led by states as far apart as Alabama and California, with a record number of new virus-related hospitalizations.
 
Chart of gold priced in Dollars vs. S&P500 index. Source: St.Louis Fed
 
"Stocks are overbought and are very over-valued, so another stock market sell-off is possible which could help to propel gold higher. However, if market liquidity dries up, as happened in March, then gold, as a liquid asset, could be sold off again," said consultancy SFA, writing a note for German refining group Heraeus.
 
"There is short term weakness in gold but that is going to set it up for a buying opportunity," reckons technical analyst Robin Griffiths at investment management and advisory firm the ECU Group in London, forecasting an economic depression ahead.
 
"For the long-term gold is very strong. Next serious overhead resistance is the old all-time high of $1900. Once its breaks that gold's going to go a lot higher."
 
China's official data today said industrial output expanded 4.4% in May from a year earlier but missed analyst forecasts as retail sales across the world's 2nd largest economy dropped at a slower pace of 2.8% compared to 7.5% in April.
 
Gold prices on the Shanghai Gold Exchange today continued to show a discount to London, with the gap increasing to nearly $15 on Monday after showing its smallest weekly average in 12 at $8 per ounce.
 
Euro gold prices dropped 1.0% to €1521 per ounce as Germany and Belgium fully reopened their borders alongside EU state Croatia and neighboring Switzerland, while France announced a number of coronavirus restrictions are being lifted.
 
Regional governments in Spain, however, are not allowing free internal movement despite 70% of the badly-hit country now seeing 'phase 3' de-escalation by Madrid.
 
Gold prices for UK investors also declined 1.0% on Monday, retreating to £1366 per ounce as Prime Minister Boris Johnson got set to join a video-conference with European Union leaders in a bid to make headway in negotiations on a future EU-UK relationship.
 
Silver prices declined further than gold, down by 1.8% to $17.17 per ounce after making 0.5% gains last week.
 
That pushed the Gold/Silver Ratio – which tracks the two formerly monetary metals' relative prices – back up towards 100, the highest in three weeks and an all-time record high when touched for 1 day in 1990.
 
The Gold/Silver Ratio reached 123 as the first global wave of the Coronavirus pandemic hit Europe and the US in mid-March.
 
Platinum prices meantime held flat above $810 per ounce on Monday as crude oil sank over 2.3% and shares in London-listed giant BP (LON: BP) lost 4.5% on news it will write down the value of its business by as much as $17.5 billion because the pandemic will prove a long-term hit to energy demand worldwide.
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Atsuko Whitehouse is the Head of the Japanese Market at BullionVault and the Editor of Japanese GoldNews.

See all articles by Atsuko Whitehouse here.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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