Precious metals too have seen massiveintraday movements and virusrelated panic have forced investors to raise cash by selling gold and silver.
This week, gold fell from $1,590 to $1,455 before recovering around $1,500. The fall is approximately 8.4 in percentage terms, which is veryhigh compared to average weekly movements. The coronavirus has increased volatility in all asset classes with the equity class’s daily movement of 6 percent being common nowadays.
Investors should look at the history of 2008 crash where the same situation was playing out. In the mad dash to raise cash, sometimes even the safest of safehaven assets get liquidated. During a heightened crisis of 2008 credit crunch, gold was getting liquidated along with S&P 500 but in Oct-Nov, gold prices started bottoming out in spite of S&P 500 still declining.
Once the worst part of panic subsided, gold commenced a new bull market which eventually led prices to all time high. Samesituation is playing out right now where in spite of safehaven status, gold is subject to selling pressure in a mad dash to raise cash.
The initial weakness is likely to last for the shortterm and goldprices will stabilize quickly once there is a suitable response from governments world over to contain the virus. There is panic going on as investors are continuously barraged by the worst possible news from the media.
Gold support around $1444 and made a double bottom and if it breaches that level, we may see gold crashing till $1372. On the upside, the next resistance comes at $1562. After the gold has confirmed that a bottom is in place, its intermediate-term (3-6 month) direction should be pointedupward as investors will likely be worried about the lingering globaleconomic impact of the virus for months to come.
Now many of the governments have realized the destructive potential of the virus and have stepped up efforts to contain it. From writing blankcheques to initiating lockdown, governments are usingevery possible means to slow the spreading of the virus. US Fed and ECB have done their part by lowering the interest rate to near zero and unveiling a massivestimulus package.
The Fed will make up to $4 trillion in loans to businesses to rescue economy, Mnuchin says
Treasury secretary says Fed will play key role in helping businesses hurt by coronavirus
Treasury Secretary Steven Mnuchin said Sunday that the Federal Reserve will play a key role in lending funds to businesses hurt by the coronavirus pandemic.
Small-business retention loans aimed at helping companies keep workers on their payrolls. This will cover about half the workforce, Mnuchin said. Payments will include two weeks’ worth of cash flow and some overhead. The loans will be forgiven if workers are not laid off.
Checks for Americans. The average check for a family of four will be $3,000, the Treasury secretary said.
Emerging from a meeting with Mnuchin on Saturday, Senate Banking Committee Chairman Mike Crapo, an Idaho Republican, told reporters that Congress would appropriate up to $500 billion to the Treasury Department to provide a capital buffer to the Fed.