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Gold hit again as mighty dollar prevails in battle of the havens

Bullion heads for lowest close since December as dollar soars to record
The CBOE Gold ETF Volatility Index, a measure of expectations for price swings, is at the highest since 2008. Image: Reuters

Gold headed for the lowest close in three months as the dollar soared to a record on mounting concern there’ll be a global recession because of the pandemic, with investors preferring the haven offered by the world’s reserve currency against shelter in the precious metal.

Bullion retreated for the seventh time in eight sessions after getting only a brief lift from a package of stimulus measures from the European Central Bank. The region’s policy makers launched an extra emergency bond-buying program worth 750 billion euros ($820 billion) to cushion the economy as the continent surpasses China in its number of confirmed cases and deaths.

Markets have been whipsawed in recent weeks, and gold hasn’t been spared, as investors sold the metal to cover losses elsewhere and the greenback surged. The CBOE Gold ETF Volatility Index, a measure of expectations for price swings, is at the highest since 2008. The Federal Reserve’s recent emergency interest-rate cut to nearly zero and other measures have so far failed to stem market stress as the crisis shows little sign of peaking any time soon.

“While stimulus measures/rate cuts — including the ECB emergency bond-buying program — are usually positive for gold, we think any support will be short-lived,” said Vivek Dhar, an analyst at Commonwealth Bank of Australia. “There is a clear preference for the US dollar over gold as global market risks intensify, and that should pressure gold prices lower in the near term.”

Gold dropped as much as 1.4% to $1 465.34 an ounce, and traded at $1 468.42 at 11:33 am in Singapore, after earlier jumping as much as 1%. So far this year, bullion’s 3.2% lower, while global stocks have plunged almost 30% and crude oil collapsed by 60%.

The Bloomberg Dollar Spot Index surged to an all-time high as the sell-off in most assets intensified, with equities and commodities sharply lower. The rush for the US currency is gaining pace despite every attempt by the Fed and peers to provide liquidity through swaps, repurchase operations and rate cuts.

Among the other main precious metals, silver was little changed, platinum fell 2.4%, and palladium dropped 3.4%.

© 2020 Bloomberg L.P.

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