Traditionally, Gold has been thought of as a safe haven trade because of the perceived value it holds due to its physical commodity status. Most of the time, when the stock markets experience bouts of uncertainty and turbulence, the price of gold moves higher, as investors move some of their money out of stocks and have to find other avenues where they can gain some measure of safety, and returns.
As we all know, the recent spread of the covid-19 (coronavirus) globally has produced plenty of fear, volatility, and dislocations throughout global financial markets. Even before the market sell-off, Gold had been moving higher (some would say telegraphing imminent danger), but over the last 2 weeks, as stocks continue to fall, Gold has also been falling, to the befuddlement of many traders and investors.
First, Gold is considered (aside from being a safe haven investment) a very good inflation hedge. This means that if you hold US dollar denominated assets, and the value of those assets lose their parity purchasing power due to erosion of the US Dollar, Gold should rally.
In recent days, the US Dollar has risen markedly, as it is the world reserve currency and also acts as safe trade for many market participants. So shouldn’t that be bullish for Gold?
Theoretically, yes, but because there is also an industrial component to Gold it is being sold alongside all the commodities such as Oil, Copper, Platinum and the like. This is happening as the global pandemic is sending most of the world into a slowing of economic input. In the other words, demand for these commodities is coming to a grinding halt.
These are some of the fundamental reasons we can attribute to Gold prices falling, however, the charts have been telling a different story. As we can see from the chart below Gold rallied strongly (twice) on February 24, and March 9 into a monthly distribution sell area.