Doesn't speak to all the issues, but helps explain the issues raised over the last few trading days.....
Even Gold Takes a Beating as Broad Market Rout Intensifies; Metal falls sharply as some investors are being forced to raise cash to make up for losses from stocks
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By Amrith Ramkumar
Gold prices fell sharply Thursday, a worrisome development for some analysts who are concerned that investors are being forced to sell many assets to raise cash.
Front-month gold futures fell 3.2% to $1,589.30 a troy ounce on the Comex division of the New York Mercantile Exchange , erasing a chunk of their gains this year and bringing their drop for the week to more than 5%.
The safe-haven metal is still up more than 20% over the past 12 months, and recently hit a seven-year peak.
But those gains have reversed recently with investors selling a range of assets to raise cash as the coronavirus threatens to tip the world economy into a recession. Stocks have tumbled into a bear market, long-term U.S. Treasury yields have slid to record lows , and volatility has gripped currencies around the world.
Traders cited a number of reasons for Thursday's slide in bullion. Investors are being forced to raise cash to make up for losses from stocks, including margin calls for those who had used stocks as collateral to buy other securities. With the value of those positions shrinking substantially, banks can demand repayment, triggering forced sales of unrelated assets.
Additionally, some investors have been seeking long-term buying opportunities for stocks and other riskier assets and could be raising cash to fund those purchases, analysts said.
The trading activity in gold adds to other signs of market stress worrying investors. Gold also tumbled on Feb. 28 in a similar selloff. On Wednesday, even Treasurys—which have soared as the main haven for investors—fell. The drop in Treasurys sent yields suddenly higher. Yields rise as bond prices fall.
"The well established market rules are out the window right now," said Tai Wong, head of base and precious-metals derivatives trading at Bank of Montreal . "It's really like the Wild West."
The pain extended to shares of gold mining companies, which fell sharply alongside the broader market Thursday. Newmont Corp . slid 3.4%, extending its drop for the week to 15%, while the VanEck Vectors Gold Miners ETF declined 11%.
Another factor driving the decline in gold Thursday was a surging dollar. A stronger U.S. currency makes commodities denominated in dollars more expensive for overseas buyers. The WSJ Dollar Index, which tracks the dollar against a basket of 16 other currencies, advanced 1.2% Thursday, also extending a recent stretch of outsize swings. The day's gain capped off the dollar's best three-day stretch since November 2011.
Some analysts still expect lower interest rates around the world to support gold since lower yields make the metal more attractive to yield-seeking investors. But more forced selling like Thursday's could also dim gold's allure as investors seek stability.
"People don't really understand what's going on," Mr. Wong said.
Harleyman!
