Today market participants witnessed a rare event with the U.S. equities rallying approximately 7% on the day based upon diminishing fears of the coronavirus, as the safe haven class rose between 3.6% (gold) and 5.39% (Silver) based upon the fact that the coronavirus is about to reach its apex in the United States this week.
This seemingly large swing in market sentiment is viewing the glass both half-empty and half-full at the same time. While it is quite logical to see the safe haven asset class rally as the United States digs in for a week that should see cases of the COVID-19 continue to rise as it reaches its apex, today’s relief rally in U.S. equities could be short-lived.
Although we are seeing market sentiment in global equities becoming more bullish, we should continue to see financial fallout from certain sectors including the airlines, and travel industry as a whole continue to contract.
One of the most important factors to look at in today’s moves in the financial markets is that although equities have rebounded a greater percentage than gold, gold is the only asset class to now be trading above pre-pandemic levels.
Today gold futures based upon the most active June contract gained significant ground. As of 4:42 PM EST June contracts are currently trading up $58.50, a gain of 3.6%, and fixed at approximately $1705 per ounce. Silver futures surged approximately 5.46% and are currently up $0.79 and fixed at $15.25.
What is also noteworthy and highly unusual is the spread between spot gold and gold futures. This spread continues to widen with the current spread reaching a differential of $49 today with spot gold currently fixed at $1657 up $41, and gold futures currently at between $1705 and $1706. One possible explanation for this spread that is widening is the expectation that the coronavirus in the United States will get worse before it gets better.
The quandary therefore is, can the US equities markets and the tremendous rally we witness today be sustainable throughout the week? While the answer to that question is unknown, market sentiment for the safe haven class with gold and silver in particular will continue to hold value if not rise throughout the week.
On a technical basis we see gold has formed an inverse head and shoulders formation with today’s move in gold futures breaking strongly above the shoulders indicating higher pricing ahead. The rally in gold futures could move as high as $1800 in the next two weeks.
Wishing you as always good trading,