Metals Stocks: Gold turns lower as prices fall victim to ‘bullish exhaustion’

Fear about the economic impact of the coronavirus outbreak has driven appetite for assets perceived as havens, including bullion and government debt.

On Friday, however, gold saw a “slight unwinding of the flight-to-safety trade,” said Edward Moya, senior market analyst at Oanda.

European investors were “locking in some flight-to-safety profits” after the US 30-year Treasury yields had the worst drop since 2009, the 5-year Treasury yield tentatively broke 0.50% and “the credit market fear gauge surged to a nine year-high.”

‘While gold’s bullish case seems impenetrable, active traders need to be prepared for massive dips on bullish exhaustion.’

— Edward Moya, Oanda

“Gold trading will remain volatile as the world enters crisis mode,” he told MarketWatch. “While gold’s bullish case seems impenetrable, active traders need to be prepared for massive dips on bullish exhaustion.”

Gold for April delivery GCJ20, -0.01% on Comex fell $1.90, or 0.1%, to $1,666.10 an ounce, after surging 1.5% in the previous session. For the week, bullion is on pace to gain 6.4%, which would represent its largest weekly gain for a most-active contract since 2011, according to FactSet data.

May silver SIK20, -1.19% shed 20.3 cents, or 1.2%, to trade at $17.19 an ounce, after rising 0.9% on Thursday. For the week, the white metal trades 4.5% higher.

Gold futures had traded as high as $1,690.70 Friday, and were on pace for the biggest weekly rise since the 2008 financial crisis before their turn lower.

“You do have a lot of people who are on margin, speculators leveraged and need to liquidate, or they get liquidated,” said Peter Spina, president and chief executive officer at “Then you see these quick price drops. I believe it is not going to last and gold is readying for $1,700+ very soon.”

Prices for the yellow metal had traded higher early Friday, then pared some of that advance after data Friday revealed that the U.S. created 273,000 new jobs on February. The increase was surprisingly strong, compared with the 165,000 climb forecast by economists polled by MarketWatch, but the report was compiled ahead of the coronavirus contagion spread world-wide.

“February nonfarm payrolls does not reflect any impact of coronavirus. March will,” said Chintan Karnani, chief market analyst at Insignia Consultants. “At the moment, US jobs market is resilient to coronavirus. US corporate profitability is not immune to coronavirus.”

The move for bullion comes as 10-year TMUBMUSD10Y, 0.726% and 30-year Treasury debt yields TMUBMUSD30Y, 1.272%hit fresh lows, which tends to bolster demand for precious metals because falling yields make gold relatively more attractive to buyers.

The weekly climb for the precious metals also comes as Wall Street suffered from further declines on Friday, with Dow Jones Industrial Average futures DJIA, -2.45% down over 500 points, while the S&P 500 SPX, -2.92% and Nasdaq Composite COMP, -3.01% also fell sharply.

The number of those affected by COVID-19, the infectious disease that was first identified in Wuhan, China in December, has increased world-wide, hit 100,000 on Friday, with cases falling in Asia but climbing in Europe and the U.S., where more than 230 cases have been reported.

On top of all that weakness in the U.S. dollar, which gold is priced in, has been another source of support for bullion. The dollar has declined more than 2% this week as measured by the ICE U.S. Dollar Index DXY, -0.91%. A weaker dollar can raise the appeal of dollar-price assets like gold to buyers using foreign currency.

Among other metals, May copper HGK20, -1.10% fell 1% to $2.548 a pound. April PLJ20, +3.56% traded at $891.60 an ounce, up 3%, while June palladium PAM20, -1.39% fell by 1.5% to $2,433 an ounce.

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