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Gold price ‘trying to find its footing’ after recent sell-off

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(Kitco News) - Gold is finally digging in its heels and fighting back – at least trying to stabilize – although traders caution that it’s too early to say the metal won’t get bullied any more.

Gold prices fell five business days in a row, and the Comex April futures contract lost just over $250 from its March 9 high to Monday’s low, turning lower for the year to date. However, prices have not set a new daily low so far on Tuesday and are in fact sharply higher as of late morning.

Analysts reported both bargain hunting after gold hit longtime lows, as well as short covering, in which traders buy to offset short, or bearish, positions taken out during the price plunge. And they suggested there will be more weak economic data, such as Tuesday’s report on retail sales, that should eventually underpin the market.

As of 11:40 a.m. EDT, April gold was $46.30 higher to $1,532.80 an ounce.

“I think it’s too early yet to call a bottom, but it feels like gold is trying to find its footing,” said Bob Haberkorn, senior commodities broker with RJO Futures. “On the whole story of the liquidity crunch in the futures market – where they were throwing out the baby with the bathwater – we’re past that point.”

He was referring to numerous reports lately that gold – which is often bought as a safe haven in times of duress – was instead being sold by market participants scrambling to cover margin calls and offset losses in other markets as equities plunged. The major U.S. stock indices went from setting all-time highs a month ago to bear territory after losing more than 20% of their value.

“There was mass liquidation all over the place,” said Sean Lusk, co-director of commercial hedging with Walsh Trading, commenting that many market participants were going to the sidelines.

Many described gold as susceptible to a pullback since positioning in the futures market was already heavily bullish, meaning selling potential whenever those trades decided to liquidate. Sell stops – pre-placed orders activated when certain chart points are hit – were triggered to accelerate the descent, Lusk added.

“Now, overnight and into the morning, you’re getting a little bit of a short-covering rally,” Lusk said. “Maybe cooler heads are starting to prevail.”

“Looking at this thing longer term….There seems to be a plan in place,” he continued, referring to efforts by central bankers and governments to fight the virus and economic fallout. “And when there is a plan in place, it seems to calm nerves.”

Still, that doesn’t mean gold can’t turn south again, he added.

“You don’t know who is caught and where,” he said, referring to market participants who still might be in a bind and have to exit.

But for now, money is starting to flow back into gold, with some market participants seeking what they think could be a bargain at the lower prices, Lusk continued.

“The Fed is not going anywhere with rates,” he said, commenting that the central bank will be trying to avoid disinflation.

In an emergency move on Sunday, Federal Reserve policymakers slashed their benchmark interest rate by 100 basis points to a range of zero to 0.25% and also launched a bond-buying program of at least $700 billion, known as quantitative easing.

“Longer term, it’s definitely bullish for gold,” Lusk said.

Gold-market psychology would be helped if the metal turns higher for the year again, Lusk said. And shortly after he spoke with Kitco News, April gold did just that – moving back above the 2019 close of $1,529.30 an ounce.

Haberkorn commented that the soft U.S. retail-sales report issued early Tuesday – showing a 0.5% decline for February – was supportive for the gold market. And, he pointed out, those figures were prior to the “lockdown” – efforts to limit gatherings of large groups – as the country tries to slow the spread of the coronavirus.

Weak data tends to help gold since it means a greater probability that the Fed could loosen monetary policy, or at least not tighten it.

One of the first major economic reports for the month of March was released Monday, when the New York Federal Reserve issued its Empire State manufacturing number. The headline number – the business conditions index – tumbled 34 points to a reading of minus 21.5 for March, which was the lowest level since 2009.

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