Gold Drifts in Choppy Trade as Central Banks Step up Crisis Efforts

  • Commodities News
Gold Drifts in Choppy Trade as Central Banks Step up Crisis Efforts
Credit: © Reuters.

By Geoffrey Smith -- Gold prices drifted sideways in choppy trade on Friday as increasing signs of an economic shutdown in the U.S. and Europe battled for investors' attention with reassuring news of more and more policy measures to support financial markets and the economy. 

By 12:45 PM ET (1645 GMT), Gold Futures for delivery on the Comex exchange were up 0.5% at $1,487.45 a troy ounce, while spot gold was up 0.8% at $1,484.67. That's a modest recovery after a week dominated by forced selling by diversified investors under pressure to raise liquidity.

Silver futures were up 3.4% at $12.54 an ounce, while platinum futures were back up above $600 an ounce at $618.95, a gain of 3.7%. 

Georgette Boele, an analyst with ABN AMRO (AS: ABNd ), she expected more selling pressure on markets in general to keep a lid on gold prices through the second quarter. She cut her forecast for the end of Q2 to $1,300 from $1,450.

Boele pointed out that in the sell-off of 2013, investors liquidated 23 million ounces (from 82 million to 59 million) gold in ETFs, pushing prices down from $1,660 an ounce to $1,200.

"Total ETF positions in gold now stand at 86 million, so a similar move could not be ruled out, especially given that long gold is still a crowded trade," Boele wrote in a research note to clients. 

Elsewhere, government bond prices were also higher Friday, forcing yields down by up to 17 basis points at the long end of the yield curve, while Fed-sensitive two-year Treasury yields dropped a more modest 7 basis points to 0.35%.

The moves come as analysts radically revise down their forecasts for economic activity over the coming months, as more and more parts of Europe and North America head for near-total lockdown. New York state Governor Andrew Cuomo followed his Californian counterpart Gavin Newsom in ordering all workers in non-essential busineses to stay home to stop the spread of the virus. 

There will be fines and mandatory closures for businesses that don't comply with the new instructions, which come into force on Sunday evening, Cuomo said. 

Over the weekend, Germany is also expected to announce tighter restrictions on non-essential business and social activity. The state of Bavaria, the country's most economically important, already tightened its regime earlier Friday. Chancellor Angela Merkel is due to hold a conference call with state governors on Sunday. 

At the same time, Germany is on the verge of breaking a decade-long taboo on state borrowing, with plans to launch a 500 billion emergency fund for businesses, according to Der Spiegel. German 10-year government bond yields rose 1 basis point to -0.33%, while eurozone sovereign spreads continued to narrow in the aftermath of the ECB's 750 billion-euro quantitative easing move on Wednesday night. 


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