Gold Tumbles as Investors Scramble to Raise Cash
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Gold was not spared on Thursday’s market rout, with gold futures on Comex falling by $52, or 3.2 percent, to settle at $1,590.30/oz.
A drop in the stock market typically raises the safe-haven appeal of gold, but it is now the asset of choice among investors who want to raise cash, and a selloff on Thursday knocked back the yellow metal’s sharp rally that began in December.
Gold traders are now selling «what they can amid a panicked marketplace,» said Kitco.com analyst Jim Wyckoff on Thursday in a roundup note.
People are liquidating gold to cover margin calls they have in the equity market, Albert Cheng, chief executive of the Singapore Bullion Market Association, said, explaining the precious metal’s sharp losses.
Gold is an easily liquidate asset, which again shows its value as a safe haven asset in times like this, Cheng said, noting similar behavior in the 1997 and 2008 financial crises.
Wall Street endured its worst session since 1987’s «Black Friday» on Thursday, following the World Health Organization’s declaration of the Covid-19 outbreak as a pandemic and U.S. President Donald Trump’s address on Wednesday night, which has seemed to cause further unease about the situation, even as he assured the United States is «more prepared» to fight the pandemic than any other nation.
At the start of trading on Friday, Singapore’s STI index fell 5 percent, the most at the opening bell since October 2008. Other stock markets also took large hits: Hong Kong’s Hang Seng index fell 5.8 percent, and Shanghai’s Composite Index fell 3.3 percent.
Australia’s S&P/ASX 200 benchmark fell 7.1 percent in its biggest decline since 2008, and is on track for its worst week on record, while New Zealand’s S&P/NZX 50 index tumbled a record 7.4 percent. Japan’s Nikkei 225 index fell 9.4 percent, and Korea’s Kospi fell 7.6 percent.
Questions & Answers
Q.What was the specific financial impact on gold futures on Thursday?
What was the specific financial impact on gold futures on Thursday?
Gold futures on Comex fell by $52, a 3.2 percent decrease. This brought the settlement price to $1,590.30 per ounce, ending a sharp rally that began in December.
Q.Why are investors selling gold despite its usual safe-haven appeal?
Why are investors selling gold despite its usual safe-haven appeal?
Investors are selling gold to raise cash, particularly to cover margin calls in the equity market. This behaviour has been observed in previous financial crises like those in 1997 and 2008.
Q.What event triggered the wider market turmoil mentioned in the article?
What event triggered the wider market turmoil mentioned in the article?
The market turmoil followed the World Health Organization's declaration of Covid-19 as a pandemic. Further unease was caused by U.S. President Donald Trump’s address on Wednesday night.
Q.Which Asian stock markets were significantly affected by the rout on Friday?
Which Asian stock markets were significantly affected by the rout on Friday?
On Friday, Singapore's STI index fell 5 percent, Hong Kong’s Hang Seng index fell 5.8 percent, and Shanghai’s Composite Index fell 3.3 percent. Japan's Nikkei 225 index also saw a 9.4 percent drop.
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