Market Overview

Safe heaven assets are being sold this week, and such a relatively new sentiment could become stronger in the coming days if the global stock market continues to recover. The recent moves in gold futures and in  US Treasuries just follow the rebound in Asian shares and keep up with the new historical highs of the tech-stocks-led American Nasdaq and S&P500 indexes, which were recorded again on the renewed euphoria on Wednesday. 

With fears settling in the market, appetite for gold is much less. This is due to deteriorating fears about the coronavirus and rising optimism that the outbreak can be localised soon. As a result, its influence on economic pace is expected to be less than many experts and investors originally thought. The mood is changing and fast becoming positive  after Chinese TV news channels announced on Wednesday that some research groups are currently close to providing an effective drug to cure the virus. Gold futures touched $1598.5 per troy ounce without attempting to approach the Iran crisis level of $1613.30 recorded early on in January this year. Quite in the opposite direction, gold prices slid into the $1580 area last Monday and continued to fall to the $1550-1565 range. 

The US ten-year Treasury yields jumped from 1.505%, which was the amount posted just several days ago, to 1.660% on Thursday morning. At the same time, the Germany ten-year bond yields rebounded from its -0.447% bottom to -0.357%. The United Kingdom’s ten-year Treasuries yields grew up to 0.605% on Wednesday evening from 0.475% last week’s lows, as investors believe in a better future after Brexit uncertainties disappear. This rise in regular coupon income in the most financially stable securities reflects the fact of  lowering interest of investors towards sovereign debt investments.

One more positive message could be derived as the yields curve between the three-month and ten-year US bonds is no longer inverted. Many experts expressed their concern last year that such an inversion could signal a possible global recession, as such recessions took place after the similar technical inversions in 1966 and in 1998, but now they also have a reason to feel some relief.

All these factors combined may be in favour of possible gold futures to move to a lower range, to around $1480-1530, where the price was gripped for several months before its Christmas unexpected rally. In an alternative scenario, gold futures volatility may persist for a couple of months as investors need to recalculate their risks due to the coronavirus situation and the stock market developments. The significant rise in gold prices, higher than $1600, may occur only in some new unforeseen force majeure circumstances.

In the long run, low interest rates set by the US Federal Reserve (Fed) and the negative deposit rates in the Eurozone, could cause another round of price growths in gold futures, similar to the situation after May 2018. The quantitative easing programs of the world central banks continue to devaluate the money supply and are weakening the status of all existing reserve currencies. However, this effect could be delayed for an uncertain timeframe as the rally in stocks and the US-China trade relations resilience before US November elections.

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