Market Watch: There's a Simple Reason That Gold is Falling Along with Coronavirus-afflicted Global Stocks

Article by Myra P. Saefong in The Wall Street Journal Market Watch

Gold prices have been acting a bit strange lately, with the haven metal plunging in the face of a dive in global stock markets hit by the spread of COVID-19 and its impact on the economy in China and around the world.

The precious metal usually finds support as a drop in the stock market tends to lift the haven appeal of gold, with benchmark stock indexes in the U.S., Europe, Asia, Canada, the Middle East and Latin America suffering losses for the week.

This time around, however, given the steep stock-market declines, gold has become the asset of choice among investors to generate cash.

“Investors are selling anything with a bid and running for cover, and that includes typical hedges like gold,” said Brien Lundin, editor of Gold Newsletter.

“We saw similar behavior during the 2008 financial crisis, however, and once investors understood and appreciated the scope of central bank stimulus coming down the pike, they began buying gold,” he said. “The price more than doubled from the lows thereafter.”

Taking a look at the bigger picture surrounding gold’s volatile moves, Lundin said “Gold’s being buffeted by waves of selling, likely from equity traders getting market calls and needing to raise cash, followed by waves of buying from investors who see a flood of central bank stimulus on the way.”

Lundin expects to see “much higher” gold prices in the weeks and month ahead.“

The stimulus programs coming up will have to include not only rate cuts, but more [quantitative easing] than the last go around, plus fiscal measures like massive government spending programs,” he said. Precious metals like gold tend to attract buyers in a low interest-rate climate.

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