Gold Prices Edge Lower, Losses Limited by High Liquidity
By Geoffrey Smith
Investing.com -- Gold prices were flat on Wednesday, outperforming U.S. government bonds, while risk assets made further gains on hopes that the Covid-19 virus outbreak will soon peak.
Official Chinese data showed a deceleration both in the incidence of new cases and in fatalities on Tuesday, but the data have been subjected to increasing doubt after China’s National Health Commission last week changed its counting methodology. Separately, anecdotal reports suggest the death toll is actually far higher.
Social media giants Tencent (OTC:TCEHY) and NetEase (NASDAQ:NTES) both briefly carried reports on their news feeds last week giving a death toll 25 times as high as the official one – before quickly returning to the official data.
By 11:25 AM ET (1625 GMT), gold futures for delivery on the Comex exchange were up less than 0.1% at $1,570.75 a troy ounce, while spot gold was up by a similar amount at $1,567.74. By contrast, government bond prices fell, pushing yields up by three to four basis points along the curve.
Silver futures lost 0.7% to $17.47 an ounce, while platinum futures lost 1.0% to $963.75. Copper futures rebounded another 0.8% to $2.60 a pound.
As has been the case for most of the last couple of weeks, losses were kept within limits by awareness of risks that a sustained bout of economic weakness caused by Covid-19 could force central banks to dig still further into their monetary toolboxes to support the economy.
That risk is most apparent in Europe, where eurozone industrial production fell by the most in a decade in December, raising the risk that the single currency area’s growth may be revised down to 0% from the initial estimate of 0.1%. Deutsche Bank (DE:DBKGn) analysts said they expected German GDP to shrink in the first quarter, marking what would be a technical recession for Europe’s largest economy,.
The Federal Reserve, meanwhile, has been supporting global liquidity more stealthily. Thanks to its bill-buying and repo operations, the Fed’s balance sheet is now back close to where it was before it started its "normalization" process last year. The Fed’s total assets have risen by over $400 billion since it moved to address what it called a temporary squeeze in U.S. funding markets.
Fed Chairman Jerome Powell told Congress on Tuesday that the operations were likely to continue until the second quarter. His testimony before the Senate Banking Committee is ongoing.
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