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Gold prices sputtering as equities resume recent slide

Kitco News

(Kitco News) - Gold prices are spinning their wheels Wednesday even though U.S. equities are selling off heavily again.

A little after noon EST, the Dow Jones Industrial Average was lower by around 925 points. At times, this has brought about a safe-haven bid for gold, such as early Monday when the metal hit its highest level in more than seven years. But at other times – such as Wednesday – gold has weakened with stocks.

The Comex April gold futures were down $10 to $1,650.30 an ounce, although one strategist noted that the decline was not enough to trigger damage on the technical charts.

Phillip Streible, chief market strategist with Blue Line Futures, suggested gold may not be taking off to the upside despite the worries about the coronavirus hurting at the economy. Despite the stock-market weakness, Streible said, investors are not giving up on equities yet, with many trying to figure out just when to hop back into the market.

“Instead of them liquidating stocks and going to gold, they have this fear of missing out,” he said.

For instance, he said, investors might have felt “pretty bright” if they had sold stocks early Tuesday, when they were weaker. But by the end of the day, the Dow had risen by more than 1,100 points.

“People are buying these stocks that they really believe in – right or wrong,” Streible said.

Charlie Nedoss, senior market strategist with LaSalle Futures Group, said there is continued selling of assets across the board as market participants try to raise cash. Further, he said, gold’s inability to hold above the $1,700 level at the start of the week might have prompted some traders to book profits and take money off of the table.

“We took out the previous high but could not close above $1,700,” he said. “So I think you’re seeing people lightening up. And you’re seeing people raising cash as equities continue to [tumble]. You’re probably seeing a lot of margin-call selling. You’re probably seeing people selling some of their gold to meet some of those calls.”

The other factor that might be holding gold back is doubts about the size of fiscal stimulus that the U.S. ends up with, Streible said. For one thing, he said, Democrats might be unwilling to agree to a big package that might help President Donald Trump’s re-election chances.

“That stimulus is going to be lower than what you think and it’s going to be very targeted,” Streible said. “It’s going to be airlines, the cruise industry, automobiles….It’s not like you and me are going to get a bunch of money and will be living large. Maybe small businesses [will get help], but you’re going to have to go through a lot of hoops to get it.”

And, he continued, smaller-than-anticipated stimulus would be deflationary and thus not help gold as would be the case with any expansion of money supply.

“I think that $1,704 was the high,” Streible said, referring to the Monday peak in Comex April gold.

Nedoss, however, looks for gold to eventually pick up again. Technically, he pointed out that the April futures are above the 10-day moving average, which was at $1,642.60 as he spoke to Kitco News.

“Technically, we haven’t done much,” Nedoss said, later adding that the April futures are having an “inside day” on a daily chart. This is when the high and low are within the prior day’s range and is often thought of as a sign of near-term indecision in the market.

As long as the market avoids chart damage, Nedoss looks for prices to start moving higher again.

“I think we start to find support here,” Nedoss said. “I think we just let a little bit of air out of the balloon. I don’t think this thing is over….I think at some point we’re going to come back and revisit that $1,700 mark.”

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