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Gold futures trade higher with spot prices sharply lower

Commentaries & Views

Today was marked by extreme volatility in the financial markets. U.S. equities had a virtual meltdown with the Dow Jones Industrial Average giving up almost 7%. This is a drop of 1861 points taking the Dow to 25,128.17. The Standard & Poor’s 500 gave up 5.89%, with the NASDAQ composite having the least percentage drawdown of the three indices after giving up 5.27%. The S&P 500 had its worst day since March 16. Traders and market participants witnessed the worst day since the epidemic morphed into a global pandemic.

Apparently, today’s selloff was a delayed reaction to the economic forecast presented by the Federal Reserve’s chairman Jerome Powell during his press conference yesterday. This delayed reaction and selloff does not account for the fact that there was a decline in the number of Americans who filed for unemployment benefits for the first time.

According to MarketWatch, “A broad and vicious risk-off mood took hold of Wall Street on Thursday, puncturing a bullish uptrend that had been fueled by signs of progressively successful reopenings from coronavirus lockdowns. However, doubts raised about the pace and quality of the recovery from the current recession raised by Powell on Wednesday and signs of rising cases of COVID-19 forced investors to reassess their positions, experts said.”

The sobering news delivered by the Federal Reserve yesterday was that their data suggests a 6.5% contraction by the end of the year. This is based on a year-over-year basis. They are also projecting an unemployment rate of 9.3%, which is more than double their former estimate of a long-term forecast that the unemployment number will reach 4.1%.

While today’s drop in U.S. equities would certainly be extremely supportive of the safe haven asset group and precious metals in particular, with the exception gold futures all of the precious metals traded on the futures exchange traded lower on the day. As of 4:52 PM EST gold futures basis the most active August contract is trading near a two-week high and is currently fixed at $1735.30 which is a net gain of $14.60. However spot gold has moved in the opposite direction. 

According to the KGX (Kitco Gold Index) spot gold lost $10.60 in trading today and is currently fixed at $1728.70. While traders bid gold pricing higher by $1.90, it was extreme dollar strength that took away a total of $12.50 to take physicals gold lower.

This discrepancy between spot and futures pricing is unusual. Although spot gold and gold futures in essence control the same precious metal, as such they typically trade in tandem in terms of direction making today’s divergence in pricing somewhat of an anomaly. It suggests that while gold may trade under pressure in the short-term, traders believe that gold will not only find its footing in the months ahead but run to higher ground.

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Wishing you as always good trading and good health,

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.