Gold prices punched higher Tuesday, with gains for the metal coinciding with an announcement that the Federal Reserve was establishing a lending facility to assist U.S. corporations in rolling over short-term debt, a key area of the market that had frozen during the coronavirus pandemic.
A gain for the precious metal would help recoup some of its losses in the wake of a five-session streak of declines, against a backdrop of mixed trading in U.S. stocks, a stronger dollar and a rise in Treasury yields.
The Fed established on Tuesday a commercial-paper funding facility to improve liquidity in the a key short-term funding market, without a such a vehicle a number of companies would have been left strapped for cash. In a statement, the Fed said it was acting to provide credit “that will support families, businesses and jobs across the economy.”
April gold GCJ20, +3.33% tacked on $ 57.20, or 3.9%, to $ 1,543.70 an ounce on Comex. On Monday, prices settled at the lowest since December of last year.
Also in Tuesday dealings, May SIK20, +0.27% reversed course intraday day to gain 14 cents, or 1.1%, to$ 12.96 an ounce after settling Monday at the lowest for a most-active contract since July 2009.
“The latest selloff for gold stemmed from the continued scramble for cash after further liquidity concerns showed disruptions in the funding markets are not going away despite the Fed’s recent actions,” he told MarketWatch. But “eventually, gold will resume its safe-haven status as the global punchbowl of monetary and fiscal stimulus is quickly expanding.”
“Gold prices could get a nice boost here as the Fed seems set to react quickly in relieving commercial paper pressure,” he added.
In a surprise move on Sunday, the Federal Reserve cut interest rates to zero and took other emergency steps to shore up the hit economy from the spread of the coronavirus.
Read: Fed injects a big dose, but it’s got the wrong medicine for the coronavirus pandemic
The Fed move, however, failed to stem losses in the stock market, prompting traders to sell gold in their scramble for cash, analysts said. Benchmark U.S. stock indexes saw mixed trading in Tuesday dealings after the Dow Jones Industrial Average DJIA, +2.39% posted a 3,000-point loss a day earlier.
Some data in the U.S. are starting to show the effects of the virus on economy. Retail sales slumped 0.5% last month, the government said Friday. That’s the biggest drop in a year. Meanwhile, industrial production showed some strength just before the coronavirus outbreak, with data from the Fed showing a rise of 0.6% in February after a revised 0.5% drop in the prior month.
Among other metals, May copper HGK20, -2.05% shed 2.1% to $ 2.3385 a pound. April PLJ20, +5.09% reversed course to gain $ 34.30, or 5.2%, to $ 692 an ounce, and June palladium PAM20, +3.69% also turned positive, popping $ 109.50, or 7.2%, higher to $ 1,623.60.80 an ounce, reversing a more than 7% decline.
