The economic instability wreaked by the coronavirus pandemic prompted some wild daily swings in the gold price in March and could be setting up the market to break out to new highs in April.
Caught between its safe-haven status and a broad selloff in all asset classes since the start of the year, the gold market has been exceptionally volatile since mid February. Although the metal’s price could be said to have traded sideways in March, ending the month around the same level it started, it hit multi-year highs and sharp sell-offs within the space of a few days.
After reaching its highest level since late 2012 in early March, it fell by around 4 per cent intraday more than once during the month, only to rebound heading into April.
That volatility looks set to continue in the short term as global economies grapple with the prospect of recession for much of this year, presenting lucrative opportunities for investors setting up trades to take advantage of the frequent fluctuations in the price of the yellow metal.
In this gold price analysis for April 2020 we sum up the key drivers for those fluctuations and highlight the latest developments in the market. Scroll down for a video with David Jones, chief market strategist at Capital.com, as he highlights what trends to look out for in the weeks ahead and uses technical gold chart analysis to set up a trade for April.
Gold price analysis in April 2020: what are the reasons behind the latest moves?
Spot goldcame into March just under $1,600 per ounce, pushing up to the $1,700 level for the first time in more than seven years. It then sold off sharply down to $1,450 in its biggest weekly decline since 1983 before quickly rebounding above $1,600 per ounce once again. The market rallied by 5.6 per cent on 23 March, its single largest one-day gain on record.
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Massive unprecedented financial stimulus from central banks and governments around the world – in response to the disruption to economic activity from shutdowns to tackle the spread of the coronavirus – has been driving demand for physical gold as a hedge against the dilutive effect on currencies.
Manufacturing, services and construction purchasing managers’ index (PMI) figures for March were in contraction territory from China to Europe to the US, strengthening the bullish case for gold. Skyrocketing US jobless claims rose by 10 million in the last two weeks, pointing to a rapid slowdown in the world’s largest economy.
While there was an initial selloff across all asset classes to cover margin calls, gold quickly re-established its safe-haven status as investors rushed back into the market to stock up on the shiny yellow bars and coins.
There was panic in March that there would not be enough physical supply of the 100 ounce gold bars required to fulfil contract deliveries available to keep pace with the demand, as three large refiners closed in Switzerland and airlines that transport gold between international metal exchanges were grounded because of government lockdowns.
Open gold contracts on the CME Group-owned Comex in the US far exceeded the volume it held in warehouses in late March and there were fears that the metal would not be transported from London in sufficient volumes. But a premium of as much as $100 in New York prices over the London market prompted a rush to transfer gold from London and the London Bullion Market Association (LBMA) coordinated with its accredited refiners, shipping companies and banks to transport metal.
A lack of liquidity widened price spreads several times during March, but ultimately investors and traders holding gold futures rolled over their paper contracts to the next expiry date, averting a major shortfall in delivery. That allowed the market to return to focusing on fundamentals.
The LBMA and CME last week reassured the market that they “are actively taking measures to ensure the continued efficient operation of global gold markets during this unprecedented time.” Gold stocks in London remain healthy and CME’s New York depositories are receiving deliveries as planned, having been deemed essential businesses exempt from lockdown, and stock levels are nearing a record high, they said.
CME has introduced a new physically-delivered gold contract that will enable delivery of 100 ounce, 400 ounce or 1 kilogram bars to provide the market with more flexibility. The Swiss refiners said at the weekend that they will partially reopen, further easing concerns about supply.
Inflows into gold ETFs have been rising steadily for more than a week, and the volume of metal held in physically-backed ETFs has risen by 10 per cent so far this year, noted analysts at BMO Capital Markets.
What do the technical charts say?
Do you want to learn what has been recently happening to gold from a technical point of view and find out how to profit off the increased volatility? Wonder where is the price of this precious metal heading next?
Watch David Jones, our chief market strategist, discuss the technical reasons for the price moves in March with a gold price chart analysis. He’ll offer a suggested trading range for April to profit from the coming price fluctuations.
Always stay on top of the latest gold price analysis by subscribing to Capital.com’s YouTube channel.
Analyst view: will the gold price rise?
Spot gold nudged above the $1,660 per ounce resistance level on Monday, paving the way for further gains.
Gold analysis for April 2020 shows there is initial downside support at $1,568 per ounce, and if the key $1,450 per ounce resistance level is broken that could pave the way for much bigger dips. But if the market breaks out to the upside, the next resistance level for the gold price in April 2020 could be $1,800 per ounce.
The technical landscape is ripe for the market to rally, said brokerage firm Blue Line Futures on Monday, pointing to the price trend completing a bullish inverse head and shoulders pattern that “would bring a massive tailwind of buying upon a move through 1700”.
“Despite a stable risk-environment upon a surge in equity markets to start the week, the economic fallout is still largely unknown, and that unknown, coupled with… historic measures [by the Federal Reserve and Washington], is a recipe for the next bull leg in gold,” the firm commented.
Gold typically trades in an inverse relationship with the US dollar but they have been moving in tandem, reflecting an appetite for safe-haven assets that analysts expect to continue in the short term.
"We’re not out of the woods just yet should panic reemerge and the highly deflationary impulse from containment effort sends real rates higher,” analysts at TD Commodities noted in a research note on Monday.
“Looking forward on the horizon, however, we think the set-up for a multi-year bull market is being cemented as the market is awash with both monetary and fiscal stimulus while rates are at the zero bound, which suggests investors will continue to seek gold's warm embrace as real global rates become entrenched in negative territory."
The TD analysts said recently that “normalising liquidity conditions, negative real rates, low cost of carry and concerns surrounding fiat currency debasement, not unlike those present during the post-GFC period, likely mean the gold price could move toward $1,800/oz in the not too distant future. A move toward $2,000 is also a distinct possibility into 2021, as the global economy normalises, monetary contentions remain loose while fiscal deficits surge.”
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