Gold's largest gain since the day after September 11th capped, but fundamentals are bid

The price of gold is slightly lower at the time of writing in the New York session, trading at $1,612.85 between a range of $1,597.20 and $1,643.10 and -0.50% and bulls are likely committed to the bid at this juncture. 

The dash for cash was hindered the yellow safe-haven metal as it plummeted back to earth from near $1,700/oz to a low of $1,451/oz, but since the Federal Reserve's massive QE program and other facilities along with various central bank QE and government stimulus which combined have flooded the market with liquidity, gold has made a remarkable comeback.

Market volatility is here to stay

Despite a slight correction owing to the surge in stocks and risk-on, the bulls are back in charge and while the COVID-19 uncertainty continues to soak up risk appetite, with lower liquidity, the price has rallied hard this week. In fact, yesterday, gold chalked up its largest daily gain (+5.09%) since the day after September 11th despite that safe havens in other asset classes such as US Treasuries or the Japanese Yen moved lower, while the DXY ended its run of 10 successive advances.

Indeed, market volatility is as high as it has ever been judging by the VIX, which has seen a high of 85.47, a touch below Oct 2008's GFC high that was 96.40 at. Risk-on and risk-off will likely to see bigger swings in price action for some time to come and a disjointed marketplace. For instance, the return of risk appetite in markets yesterday came even though the PMI releases warned that the global economy was heading for a sharp contraction, with the readings collapsing right across the board. 

$2 trillion stimulus package on the way to Americans 

Gold tends to outperform in such market conditions, pulling in the bid from safe-haven flows. Given the sheer demand for physical gold, futures are seeing higher volumes which are more sensitive to market sentiment. We have seen gold for April delivery on Comex drop $25.10, or 1.5%, at $1,635.70 an ounce, after surging 6% on Tuesday following the US news that there was a breakthrough on the Senate floor around 01:30 am, for a package that would extend extraordinary taxpayer assistance to potentially millions of companies that have been hammered by the fast-moving economic crisis – a program that aims to keep small businesses and workforce paid throughout the crisis, to help lessen the economic pain of the coronavirus pandemic.

However, the package is not something to be celebrated, as it has come out of necessity and whatever bid we might be seeing in US benchmarks and risk sentiment on the back of the stimulus, we should not forget that Wall Street has just lost its biggest bid – a provision in the bill means to block companies that receive federal money from using it to buy back shares. So long as the COVID-19 is around, so will be risk-off and that is supportive of gold. 

Gold levels