Gold futures dropped by nearly 5% on Friday, suffering the sharpest daily slide since June 2013.
Investors rushed to sell the precious metal to generate cash to cover losses in the stock market, which continued to plunge on rampant worries about the spread of COVID-19 epidemic and its effect on the global economy, analysts said.
“Investors absolutely see gold as a safe-haven, but the yellow metal is now succumbing to deleveraging pressure,” said Peter Grant, vice president of precious metals at Zaner Metals. “This is when investors sell profitable positions to raise cash during a market rout. Frequently the cash is used to cover margin calls in other markets.”
Gold for April delivery GCJ20, -3.49% on Comex dropped $75.80, or 4.6%, to settle at $1,566.70 an ounce, for the biggest one-day percentage loss since June 20, 2013, according to Dow Jones Market Data. The most-active contract also registered a weekly slide of about 5%, the sharpest decline since the week ending Nov. 11, 2016. The moves erased what had been a gain for the month and it was down 1.3% from the end of January.
May silver SIK20, -6.26%, meanwhile, dropped $1.278, or 7.2%, to finish at $16.457 an ounce, for a weekly skid of about 11.6%. The white metal marked its sharpest weekly slide since the period ended April 19, 2013. For month, the contract was roughly 9% lower.
The moves for the precious metals came as the Dow Jones Industrial Average DJIA, -2.99% fell by nearly 900 points in Friday dealings following a plunge Thursday that put the benchmark index into correction territory. It’s on the verge of the worst weekly slide since 2008.
It is worth noting that both gold and silver rallied in the lead-up to this week’s stock market plunge, with gold trading near a seven-year high and silver also gaining as investors flocked to those perceived havens, but the rally in precious metals has collapsed this week.
“There is an old saying in trading markets that when times get really dire and anxiety is high, you don’t sell what you want, you sell what you can. Such is likely part of the reason safe-haven gold has seen downside price pressure this week,” wrote Jim Wyckoff, senior analyst at Kitco.com, in a daily update.
Meanwhile, Michael O’Rourke, chief market strategist at JonesTrading said that the tandem selloff in stocks and gold, an unusual dynamic because gold tends to draw bids when risk assets are sold, is due to deflation fears.
“The weakness in Gold today is a market signal about fears of global deflation settling in,” O’Rourke wrote.
Deflation is usually defined as an actual decline in the prices of consumer goods which tends to discourage spending and slow economic growth further.
Other metals followed gold and silver’s lead to end sharply lower. May copper HGK20, -1.40% lost 1.2% to $2.54 a pound, with prices clinging to a monthly rise of 0.7%. April platinum PLJ20, -4.95% lost 4.5% to $864.70 an ounce, for a monthly loss of around 10%.
June palladium PAM20, -9.26% dropped 8.1% to $2,491.10 an ounce, but after posting another record settlement Thursday, the contract saw a gain of more than 12% from the end of January.