Gold Prices Recover as Fed Acts to Unfreeze Funding Markets

By Geoffrey Smith

Investing.com -- Gold prices recovered on Tuesday after the Federal Reserve moved to restore liquidity to U.S. short-term funding markets, reducing the need for forced selling by portfolio investors.

The Fed said it would reintroduce a program for purchases of commercial paper, a $1.1 trillion market used by corporates for short-term funding, that had shown increasing signs of freezing up in recent days.

By 12:35 PM ET (1635 GMT), gold futures for delivery on the Comex exchange were up 3.1% at $1,532.40 an ounce, their highest since Friday.

Spot gold was up 1.0% at $1,530.32 an ounce.

Silver and copper futures continued to give ground, however, as market participants revised down their outlook for anything with a cyclical element in the wake of President Donald Trump’s warning on Monday that the coronavirus outbreak might tip the U.S. economy into recession.

Silver futures were down 2.4% at $12.50 an ounce, while copper futures fell 2.8% to $2.33 a pound, their lowest since October 2016.

“Gold appeared to lose its haven status last week and has not been immune to the volatility shock,” Benjamin Jones, Multi Asset Research at State Street (NYSE:STT) Global Markets, said in e-mailed comments, adding that the need to meet margin calls and cover losses in other assets are the most likely reason for withdrawals from gold-backed ETFs in recent days.

However, he argued that the medium-term fundamental outlook for gold remained strong, due to the prospect of a sustained period of low or negative real interest rates in the developed world.

“Central banks are slashing rates, in an emergency fashion to zero in the wake of Covid-19,” Jones said. “It would take a miracle to see central banks changing tack soon as the uncertainty around the economic impact of the virus will remain even if case numbers start to fall.”

Case numbers are showing no signs of falling yet. The U.S. Center for Disease Control and Prevention reported a 21% increase in confirmed cases as of 4 PM ET (20:00 GMT) on Monday.

Its European counterpart reported an 18% rise in confirmed cases to over 61,000.

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