The gold price surged on Tuesday after the latest action by the US Federal Reserve to shore up financial markets and the announcement of a massive stimulus program by the Trump administration convinced investors that the metal’s status as a safe haven asset and inflation hedge remains intact.
The gold price jumped out of the gate on the Comex market in New York, touching a high of $1,554.30, up $67.80 an ounce or 4.6% compared to Monday’s close. That was the biggest one-day gain since June 2016, when Brits voted to leave the European Union.
Gold is starting to act like how it should act.
Bob Haberkorn, senior market strategist at RJO Futures
Gold has been on a wild ride over the past week, dropping as low $1,450 an ounce yesterday – a $250 an ounce slide after briefly hitting a seven-year high above $1,700 a week earlier.
“The fact that the Fed is stepping in, they are putting out more liquidity in the market, has helped gold to trade higher. Gold is starting to act like how it should act,” said Bob Haberkorn, senior market strategist at RJO Futures.
Gold usually performs well in an environment of rising inflation expectations, ultra-loose monetary policy and falling interest rates.
On Tuesday the Fed announced a restart to a 2008 financial crisis-era purchasing program of short-term corporate debt while an economic assistance package of more than $800 billion marked a shift by the White House towards a more aggressive response to the pandemic.
A wave of global central bank stimulus including an emergency rate cut to zero by the Fed, a pledge from leaders of the G7 nations to do whatever is necessary to respond to a global slowdown, have also bolstered gold’s prospects.
Bargain hunting
“Gold has got a lot of fundamental factors behind it to help drive it higher. Plus, you do have the technical aspect of it given the drawdown we had over the past two days,” Michael Matousek, head trader at US Global Investors told Reuters.
“It is a great opportunity for people to enter into the gold market.”
Goldman Sachs analysts said in a note that “in the near term, the gold price is likely to remain volatile as it tries to find a new equilibrium.”
(With files from Reuters)