Gold prices pushed to session highs late Monday afternoon, as U.S. stocks continued their massive selloff, with both the S&P 500 and the Dow plunging in a matter of minutes.
Analysts pointed to a more hawkish Federal Reserve as the catalyst for the move down in equities.
“What we are seeing in the market is a reaction to last week — with the Fed changing hands, and a marginally more hawkish rhetoric than expected, and solid jobs data with wage growth, and solid GDP projections for Q1,” president of Blue Line Futures Bill Baruch told Kitco News.
“All of that combined pushed growth and inflation expectations faster than markets have priced in and we saw the dollar move and yields move higher,” Baruch said. “The stock market had to catch up with things and re-adjust.”
In a matter of minutes during Monday’s session, the Dow Jones Industrial Average dropped 1,600 points, the biggest decline since December 2008. The index was last down 1175 points or 4.6% on the day.
The S&P 500 also saw a massive drop of 5%, last trading 4.1% down on the day. In the meantime, the Cboe Volatility Index more than doubled, showing highest level in two-and-a-half years.
Gold responded with a jump up in prices, with April Comex gold futures last trading at $1,341.0, up 0.28% on the day.
“The markets are getting spooked and rattled right now,” said Colin Cieszynski, chief market strategist at the Fundamental Technician Today. “People tried some bargain hunting early on Monday, but then round two of selling began.”
Nick Exarhos, economist at CIBC World Markets, described the situation as “panic setting into the marketplace,” with gold benefitting from that.
But, others said that even though gold prices are seeing a small rally based on this, the upside is limited because the main catalysts for the equity selloff are stronger economic growth and rising U.S. dollar.
“Ultimately, gold is starting to respond, but it is not responding as much because of the backdrop behind it — stronger U.S. dollar and growth. Gold is not a major benefactor here. It is at an elevated level already and upside is limited unless there is an actual catalyst,” Baruch said.
Reference: Kitco
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