The prices of gold dropped for the second consecutive session on Wednesday as stocks hit close to a three-month high. The stock markets were boosted by hopes for additional COVID-19 stimulus and optimism about global economic recovery, which in turn lifted risk appetite and lowered the demand for the yellow metal. The decline of the yellow metal was limited by the 0.2% drop in the U.S. dollar which is currently trading at more than two-month low.
Spot gold is currently trading at $1,717.18 an ounce as of 0941 GMT.
Yesterday, stocks in the U.S., Europe and emerging markets rose to their highest levels since early March. Asian stocks are expected to follow because of the anticipated release of further economic stimulus by several governments. The markets are already waiting for the meeting of the European Central Bank on Thursday which is expected to deliver an additional stimulus of about 500 billion euros.
Many central banks and governments have already issued unprecedented monetary and fiscal stimulus packages to cushion their economies against the impact of the COVID-19 pandemic.
AxiCorp’s chief market strategist Stephen Innes commented that many investors who purchased gold as a hedge for stocks no longer see the value of the precious metal now that stocks have recovered. But he believes that investors will continue to buy the precious metal because of the prevailing uncertainties and low-interest-rate environment. Innes does not expect gold to slide below $1,700 an ounce level. ANZ analysts added that the bullion remains supported by the weak economic environment. In addition, the demonstrations against police brutality in the U.S. cushion the fall of the metal.
In a related development, the holdings of the largest gold-backed exchange-traded fund in the world increased by 0.1% to 1,129.28 tons yesterday. This is the sixth straight increase which reflects market sentiments.