Gold Markets Recover from Early Retreat

Ibeth Rivero

GoldSo far this week, gold futures have fallen 0.64 percent, continuing last week's trend and losing its safe-haven status at least momentarily. The gold markets began the week with a positive trend, adding 0.73 percent during Monday’s session, but pulling back during the following session, losing 1.37 percent. Silver markets, which tends to underperform gold, has lost so far 1.71 percent this week.

The drop is linked to the collapse of the oil markets, which is driving many traders towar the dollar. In normal circumstances, a fall in oil prices would have been a bullish sign for gold investors and traders, but the prolonged plunge is a sign of a potential deflation in commodity prices. Gold is a well-known hedge against inflation, so it shouldn't be surprising that facing the opposite situation, traders prefer to leave out their gold reserves and keep dollars instead.

In any case, many expected this slump to be short-lived, especially because of the gloomy expectations regarding the advance of the coronavirus pandemic around the world, which has infected over 2.5 million people. The WHO general director claimed that the worst of the pandemic is still ahead, warning against the decision of many countries to lift up the lockdown measures that were set up to hinder the advance of the outbreak.

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“Trust us. The worst is yet ahead of us,” told WHO's Tedros Adhanom Ghebreyesus to reporters, “Let’s prevent this tragedy. It’s a virus that many people still don’t understand,” he added.

The chief's comments came amid a wave of skepticism towards the role of the World Health Organization in terms of tackling the advance of the pandemic, as it's believed that the organization has favored the Chinese government at the expense of the rest of the members. Recently, US President Donald Trump even decided to stop funding the WHO, a controversial move that was heavily criticized and even deemed as an attempt to cover-up Trump's supposed own mismanagement of the crisis.

What this information means is that the current situation may get worse in the upcoming weeks, which in turn could make precious metals more attractive given their historical status as safe-haven assets. However, according to some analysts this may take some time. It's also still too early to know whether the re-opening of the economy will turn out to be bad from the point of view of the markets.

“The general risk theme has been dominated by the drop in the price of oil," explained an analyst at FXStreet, "Gold could then rise as the market paradigm shift in the future and the dollar strength eases but this could take some time," he added.

From the supply side, transportation of gold has become exceedingly difficult and some refineries were closed because of the pandemic. Those disruptions on supply chains were considered an upward pressure but for the moment the supply is enough to satisfy the current demand.

At the moment, oil prices are recovering which has pushed down the demand for the dollar and is aiding the gold markets. However, there's still the possibility that the recent market crash will have a long-lasting impact on the market sentiment, so discarding a pullback is not wise.

About the Author
Ibeth Rivero

Ibeth contributes daily market commentary in both English and Spanish (both of which she speaks fluently) and she also manages the DailyForex mobile app to ensure that traders around the world are getting important market updates in real time.

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