As Stocks Gyrate, Investors Scoop Up Tons and Tons of Gold

(Bloomberg) -- It doesn’t seem to matter anymore whether global stocks are rising or falling -- investors just keep snapping up more gold.

Holdings in gold-backed exchange-traded funds surged by 55 tons in the previous three days, or 1.8 million ounces, accounting for almost a third of year-to-date inflows, according to a preliminary tally by Bloomberg. As a haven asset, demand for the metal tends to move in the opposite direction from stock markets. Yet this week’s ETF buying continued Tuesday even as equities bounced following Monday’s rout.

“Gold continues to provide a safety net as financial markets tumble,” Stephen Innes, chief Asia market strategist at AxiCorp Ltd., said in a note. “It just feels flat-out comfortable owning gold in this environment.”

Prices swung between gains and losses Wednesday as markets awaited details on the timing and size of government stimulus in response to the coronavirus. U.S. equities sank as much as 5.1%, putting pressure on investors to cash in gains from bullion to cover margin calls.

“There’s been a lot of reports of a re-run of the pre-financial crisis period in the gold market, where a lot of investors were having to sell their more-liquid assets to meet losses on their less-liquid assets,” Kieran Clancy, assistant commodities economist at Capital Economics, said by phone Wednesday. “Gold falls into that category of more liquid.”

An emergency interest rate cut by the Bank of England added support to bullion, while Italy plans to spend 25 billion euros ($28.3 billion) on measures to help combat the economic effects of the outbreak.

Meanwhile, Spain will offer credit lines and delayed tax timetables mainly for small- and medium-sized firms. European leaders who joined a two-and-a-half hour call Tuesday stopped short of declaring a coordinated fiscal stimulus program.

“Given the uncertain nature concerning the severity of the coronavirus, low global interest rates, central banks expected to provide even more liquidity and a high level of negative yielding debt globally, there is plenty of price support for precious metals,” Rob Haworth, senior investment strategist at U.S. Bank Wealth Management in Seattle, said in an emailed note.

Bloomberg Intelligence analysis on gold’s momentum

Gold holdings in ETFs rose 170.5 tons this year through Tuesday, the latest data show. Buying is being stoked by recession fears because of the coronavirus outbreak and a growing wave of crisis monetary easing.

Spot gold was down 0.4% at $1,642.80 an ounce at 2:23 p.m. in New York, after earlier rising as much as 1.3%. On the Comex in New York, bullion futures settled 1.1% lower. Spot silver, palladium and platinum also declined.

Investors’ focus now turns to the European Central Bank and its policy meeting Thursday, with President Christine Lagarde warning of an economic shock unless leaders act urgently. The Federal Reserve meets next week and is also seen paring rates, further aiding gold’s appeal.

Still, gold may face more headwinds on its way up, given that the metal’s price volatility and average trading ranges remain elevated, said Ole Hansen, head of commodity strategy at Saxo Bank A/S.

“In order to revisit and potentially break above $1,700, we probably need to see a Europe-style escalation of the virus threat to the U.S.,” Hansen said.

©2020 Bloomberg L.P.