Last week, the coronavirus began to spread rapidly in the United States and Europe, which led to another collapse in quotes on global financial markets.
Even gold, which is traditionally considered a safe haven and one of the most reliable ways to store money, is suffering from a sell-off.
The fact is that the collapse in financial markets forces investors to liquidate positions in precious metals to cover losses and maintain margins on positions in other assets.
According to a number of analysts, the fall in the price of gold in the conditions when the Federal Reserve reduced the interest rate by 1.5%, promising REPO markets in the amount of several trillion dollars and resuming quantitative easing, is a wake-up call.
Another indication of investors' pessimism is the growth of the ratio of the cost of precious metals and oil to record highs.
As of March 6, the cost of an ounce of gold was about $1,683. However, the exchange rate of the precious metal sharply went down after the collapse of oil prices caused by the withdrawal of Russia and Saudi Arabia from the OPEC+ agreement and the price war that unfolded between them. Gold fell by more than 9% in the second week of March, showing the strongest drop since 1983.
Uncertainty about the situation with coronavirus and its impact on the global economy remains high, which implies the risk of continued volatility. Therefore, we can expect that any rebound of the precious metal will be limited to those players who want to cover the margin and limit losses on other assets.
Thus, if the stock markets continue to fall, the elimination of long positions in gold will be inevitable. Even if the precious metal rate rises again to $1,600 per ounce or rises to last week's highs of $1,700, the sell-off will be twice as aggressive.
At the same time, extremely low nominal and real interest rates, liquidity injections, quantitative easing, and fiscal stimulus should help smooth the negative effect of the coronavirus and, as the panic subsides, ensure capital flows into gold.
"In all likelihood, the patience of holders of long positions in gold will be rewarded, but this requires deep pockets. After a strong drawdown last week, do not blindly believe in technical levels and exclude the possibility of further decline. However, the range between $1,460 and $1,480 may become a long-term support level. If someone wants to buy precious metal, no matter what, this range can be as good as any other," experts believe.
