Metals Stocks: Gold edges lower as stock-market plunge points to further deleveraging

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Markets/commodities reporter

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Deputy markets editor

Gold prices on Wednesday dropped back to their lowest settlement since December, signaling a flight to liquidity by investors will continue to outweigh the metal’s traditional haven appeal as equities see another round of heavy losses on worries over the economic impact of the COVID-19 pandemic.

The market has seen “more panic selling in any liquid asset,” said Jeff Wright, executive vice president of GoldMining Inc. U.S. Treasury Secretary Steven Mnuchin’s warning of the possibility of 20% unemployment without stimulus was likely “the tipping point towards lower levels across every asset class I can see.”

“Gold could bounce back towards $1,550ish, but still think we are in range of $1,500-$1,600 in near term,” he told MarketWatch. “Long term, gold has to go higher once panic subsides and new normal takes over.”

Gold for April delivery

GCJ20, -2.62%

 on Comex fell $47.90, or 3.1%, to settle at $1,477.90 an ounce, with prices for the most-active contract ending at their lowest since December, according to FactSet data. On Monday, prices for the most-active contract scored their first gain in six sessions.

May silver

SIK20, -5.40%

dropped 72.3 cents, or 5.8%, to $11.772 an ounce after finishing Monday at its lowest since late January 2009.

Benchmark U.S. stock indexes moved sharply lower in Wednesday dealings after a Tuesday bounce. U.S. stock-index futures had traded limit down overnight. Sharp selloffs in equities and other risky assets have tended to drag gold lower as well in recent weeks, despite the metal’s haven status, with analysts tying pressure to forced selling as deleveraging by funds and other investors see them dump gold along with other assets.

Strong gains by the U.S. dollar could also be a factor, said Daniel Briesemann, analyst at Commerzbank, in a note. The dollar on Tuesday hit a three-week high on a trade-weighted basis and has seen upward pressure amid a global scramble for dollars outside the U.S. A stronger dollar can be a negative for commodities priced in the unit, making them more expensive to users of other currencies. The ICE U.S. Dollar Index

DXY, +1.67%

 was up 1.9% Wednesday.

A rise in government bond yields was also seen as a hurdle for gold, Briesemann said. Higher yields increase the opportunity cost of holding nonyielding assets like gold. The 10-year Treasury note yield

TMUBMUSD10Y, +10.23%

 climbed 15.4 basis points to 1.12%

Data released Wednesday showed February new-home construction fell 1.5% from January to 1.6 million.

“Housing data, typically good data point, is irrelevant as are most economic numbers in next couple weeks” Wright said.

The Federal Open Market Committee meeting scheduled for Wednesday has been cancelled due to restrictions on meetings during the coronavirus epidemic, but the Federal Reserve has already this week cut its policy interest rate to near zero, restarted its bond buying program and added extra repo auctions to provide liquidity to short term money markets.

Among other metals, May copper

HGK20, -8.56%

 lost 7% to $2.151 a pound. April

PLJ20, -8.94%

 fell 9.1% to $605 an ounce and June palladium

PAM20, -2.59%

 settled at $1,419.80 an ounce, down about 6%.

Read: Here’s how copper has weathered the COVID-19 economic storm

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