Gold’s Largest Gain in 11 Years

A confluence of bullish factors ignited an historic takeoff for gold on March 24, as the precious metal soared more than $90 an ounce, or 6 percent, settling at $1660.80 for the front month April futures contract in New York, its largest gain in 11 years.  The increase came on top of a 4 percent rise the prior session. Concerns about a shortage of refined gold in the face of growing safe haven demand, along with the removal of several barriers that had recently held gold back, fueled the dramatic jump in price.

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“I’ve never seen anything like this,” veteran gold trader George Gero, of RBC Wealth Management told The Wall Street Journal. “The demand is huge.”

A series of events had set gold to shine. The Federal Reserve Board announced steps on March 23 to flood the financial system with dollars to offset economic damage resulting from coronavirus shutdowns. The Fed’s action pressured the U.S. dollar lower, a plus for the precious metal. The central bank’s promise of liquidity slowed the dash for cash, which had led to a liquidation of hard assets, including gold, during the previous week. As the stock market rebounded on March 24, margin calls—demands from brokers that investors add more cash to accounts holding stocks purchased on credit—also eased, further reducing selling pressure for hard assets. The Federal Reserve had previously paved the road for gold to ride higher by lowering short term interest rates to nearly zero, which reduces competition for gold from interest-bearing assets.  

With the physical supply of gold limited due to the closure of major precious metals refiners, analysts expect the price of gold to remain strong. “It’s a godsend for bullion investors,” Stephen Innes, chief market strategist at financial services firm AxiCorp, told clients.

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