Gold Stocks Becoming Investors’ Favourite? Depreciating Currency and Brighter Gold

Gold Stocks Becoming Investors’ Favourite? Depreciating Currency and Brighter Gold

Gold stocks are performing like a charmer amidst the market crisis prompted by the COVID-19 pandemic, well supported by the underlying commodity- gold, which is taking strong roots around the peak value of $2,696.94 (intraday high on 3 March) to presently trade at $2,617.90 (as on 23 March 2020 1:39 PM AEDT).

The rise in gold prices is very well supporting the ASX-listed gold stocks, which are presently finding favour amongst the investors to sail across the stormy market.

Fundamentals Favouring Gold- An Array of Weak Data Flowing in the Market

One of the most crucial factors, which is currently supporting the gold spot is the weak global economic data. Recently, the industrial production and fixed asset figures in China saw a whiplash, which in turn, exerted tremendous pressure on consumption-based commodities such as base metals like copper.

To Know More, Do Read: COVID-19, Not Limited to Humans; Copper Slips Near 3-Year Low as Virus Arrests Global Economic Growth

However, while the consumption-based commodities are under pressure, iron ore is showing some restraint and tacking the market headwinds despite weak economic conditions across China and the globe in the wake of supply concerns.

To Know More, Do Read: Iron ore Prices Beating Market Headwinds as Supply Chain Gets Derailed Thanks to Virus

But no other commodity expect gold is proving to be as lucky as iron ore, which is somewhat surviving the global plunge. However, while iron ore is rooted over the supply concern, these difficult news flows are proving to be favour of the AUD denominated gold spot.

In the status quo, the additional weak data coming from the United States is extending its support to the Australian gold spot with Empire State Manufacturing Index slipping below the threshold of 0.0 to stand at -21.5 for March 2020, which is considerably below the market consensus of 5.1 and its previous level of 12.9.

The weaker housing price across Australia is adding further in the bucket of weak economic figures with the Housing Price Index quarter-on-quarter changing by 3.9 per cent, down below the market expectation of 4.5 per cent, which is further exerting pressure on the domestic currency, supporting the domestic gold spot.

Federal Reserve and U.S. Economic Figures

The Core Retail Sales m/m across the United States fell by 0.5 per cent for February 2020, down below the market consensus of +0.2 per cent and its previous level of +0.6 per cent. Further, the building permits also took a slight hit for February to stand at 1.46M, down against the previous month levels of 1.55M.

While there are lot of negative economic figures flooding the market, sector-wise, the manufacturing and services are taking a troll, which is further contributing towards higher unemployment claims.

The weekly unemployment claims across the United States have now reached 281k (as on 12 March 2020), near to the latest peak of 298k seen in late-2017.

However, while the weak economic figures from the United States are coming into the picture, the gold spot denominated in USD is also trading under pressure with prices cracking from the recent peak of USD 1,702.96 (intraday high on 3 March 2020) to the present level of USD 1,492.56 (as on 23 March 3:35 PM AEDT, down below its psychological support of USD 1,500 per ounce.

The market assesses that the prima facie for the fall in gold is the change in policies from the Federal Reserve. The FED is bringing down the interest rate as much as the economy requires to bolster the halted economic activities amid credit halt from banks to individual households and businesses in these difficult time, which along with many other activities such as easy lending, less reserve requirement, and support packages is keeping the dollar ignited. The money flow is more towards the dollar as against gold.

To Know More, Do Read: Is FED Running Out of Bullets in Bringing Down The COVID-19 Impact? Oil Market Yet Under Duress

The dollar index has surged from 94.65 (intraday low on 9 March 2020) to the present high of 102.99 (intraday high on 19 March 2020 ), near to the peak of 103.82 seen in the early January 2017, and presently holding around the same level with additional support from the United States Federal Reserve coming into the picture.

In the status quo, Steven Mnuchin- Treasury Secretary mentioned that the United States Fed would play a vital role in leading funds to businesses and suggested that the Federal Reserve holds ~ USD 4 trillion of liquidity which could be used to bolster the economy.

However, many Fed followers are suggesting that these actions are temporarily in nature.

Albeit, whatever would be the belief, the market is gaining confidence in the United States dollar, which is strengthening further and its cross-relation with other currencies such as AUD is polishing the shine of gold on the domestic front.

To Know More, Do Read: The Antecedence of Gold Rally; Gold To Mimic The Lehman Crisis Move?

The Depreciating Home Currency and The Brighter Gold

The concreted dollar is now putting pressure on AUD with AUD against USD falling from USD 0.7029 (intraday high on 1 January 2020) to the present low of USD 0.5507 (intraday low on 19 March 2020), reflecting a price depreciation of 21.65 per cent.

The fall in the domestic currencies is raising quote of gold spot against it, which in turn, is keeping the gold shiny across the domestic front.

Also Read: ASX-Listed Gold Stocks- An Emerging Ray of Hope for Domestic Investors

In the light of recent developments and events, gold is performing relatively well as compared to consumption-based commodities such as copper, nickel, iron ore, which in turn, is now creating interest around the ASX-listed gold stocks, inferred with many stocks making it to the top gainers of S&P/ASX 200 index in between the session.

During the day session today, the S&P/ASX 200 index extended its array of losses with the index dropping to a low of 4,402.50 post ringing the opening at 4,755.20, which marked a fall of ~8.01 per cent. While on the other hand, the S&P All Ordinaries Gold Index maintained a positive note with the price reaching a high and a low of 5,717.40 and 5,348.90, respectively, after trading at 5,560.70 at the opening bell.

The index climbed ~2.81 per cent higher during the session today, however, some of the composite stocks, especially small- to medium-cap, slipping to negative territory during the end of the session.

The performance of many assets and stocks from their recent peak is as below:

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