Commodities in the eye of the storm

Market report Michael Blumenroth – 20.03.2020

Weekly market report

The coronavirus continues to hold markets in a stranglehold. Unfortunately, amid rising numbers of those infected worldwide and the drastic countermeasures of many countries, concerns about a global recession have increased considerably. Especially here in Europe, but also in the US, restrictions unthinkable just four weeks ago have been imposed on public life.

It is obvious that this will have a significant impact on the global economy, at least in the first and second quarters of 2020, even though central banks and governments have tried to soften the blow with trillions of US dollars in aid over the past two weeks. This caused a flight from positions across markets. Anything that could be liquidated in the short term was turned into cash.

ECB and Fed launch massive bond purchases

This led to further sell-offs on the stock markets to a never before seen extent, despite temporary counter-movements. Government bond markets also saw a massive sell-out until the ECB and the Fed launched countermeasures. If there’s one thing the markets do not need at the moment it is rising market interest rates. Economic concerns also heavily hit the commodity markets, with a focus this week on oil prices, the massive decline in the price of copper and the precious metals silver and platinum (not to mention palladium). Gold did not escape unscathed, as investors were eager for US dollar holdings and sold any positions up for quick liquidation.

Gold extremely volatile

In a direct week-on-week comparison, the gold price is a good deal lower, but has recovered since the weekly low. Last Friday, the precious metal traded at 1,582 US$/ounce. By Friday evening, it had declined to 1,530 US$/ounce. After the surprising lowering of interest rates to near-zero by the Fed on Sunday evening, gold recovered to 1,573 US$/ounce. What followed was an almost unbelievable crash to 1,452 US$/ounce on Monday noon; the Fed had apparently caused the markets to panic and investors liquidated assets. By evening, the gold price had recovered slightly to 1,520 US$/ounce. The next few days saw heavy volatility, with daily spreads of US$80 as the norm rather than the exception. After touching 1,455 US$/ounce yesterday evening, it currently trades around 1,510 US$/ounce.

The euro was under considerable pressure over the course of the week and receded to just under 1.0650 €/ US$ yesterday, a four cent week-on-week decline.

The development of Xetra-Gold 

The price of Xetra-Gold also receded significantly during regular trading hours, from 45.50 €/gram last Friday morning to 41.75 €/gram on Monday afternoon. Since then, it has risen only slightly to 45.50 €/gram on Tuesday afternoon and 44.95 €/gram at the start of trading this morning.
The consequences of the corona virus will remain in the spotlight for the foreseeable future. Should the markets rally, this could increase gold purchases and drive the gold price; perhaps also in view of the possibility of rising inflation rates in the distant future.

I wish all readers a calm weekend. Stay safe.

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