Gold prices jumped in early trade on Monday after another emergency rate cut by the U.S. Federal Reserve, before paring gains as some investors sold the metal for cash amid a sell-off in equities.
Spot gold was up 0.9% at $1,543.60 per ounce by 0248 GMT, having risen as much as 2.8% earlier. The metal fell 3% on Friday. U.S. gold futures rose 1.8% to $1,544.20 per ounce.
Prices rose initially due to the surprise Fed rate cut, said CMC Markets analyst Margaret Yang Yan, adding that: “The market is very indecisive and there are divergent opinions. Investors are now dumping everything. They just want cash.”
The Fed slashed rates back to near zero, restarted bond buying and joined with other central banks to help put a floor under a rapidly disintegrating global economy amid the escalating coronavirus pandemic.
The Fed’s rate cuts and restarting of quantitative easing are positives for gold, but “we’re in an unconventional time and theory might not apply in a time of high volatility and divergence”, Yan said.
The dollar fell from a more than two-week high and stock markets plunged after the Fed cut rates for the second time this year to soften the economic blow from the economic shock.
A widespread pandemic causing a global shutdown, emergency rate cuts and falling U.S. dollar should be “nirvana for gold”, Jeffrey Halley, a senior market analyst at OANDA, said in a note.
“Unfortunately, these are not normal times and the usual rules don’t seem to apply anymore. If equities drop further, liquidation of gold long positions seems inevitable,” he said.