By Barani Krishnan
Investing.com - A weak Wall Street and confidence in the German economy means the same thing for gold: sell.
The Dow’s slump on Tuesday amid a sea of red in U.S. energy and tech stocks created fears of an imminent cash crunch that knocked gold right off the $1,700 berth it had returned to in the previous day.
Pressure had piled on gold during European hours after Germany’s ZEW survey showed a surprise dose of optimism brewing for the euro zone’s largest economy, dulling gold’s advantage as a hedge against financial troubles.
Gold futures for June delivery on New York’s COMEX settled down $23.40, or 1.4%, at $1,687.80 per ounce.
Spot gold, which tracks live trades in bullion, was down $16.46, or nearly 1%, at $1,679.82 by 2:26 PM ET (18:26 GMT).
“The yellow metal is likely feeling the pain of financial deleveraging once again,” TD Securities said in its note on gold. “Large losses incurred by the carnage in crude may be forcing some liquidations across other asset classes, which could be the primary driver impacting the yellow metal in the immediate term.”
U.S. crude fell to historic negative prices on Monday, sending shockwaves across markets. But gold displayed its safe-haven self in the previous session, returning to above $1,700 pricing as Wall Street took a limited hit initially from oil’s troubles.
The ZEW survey on the German economy came in with a reading of 25.2, much higher than the consensus estimate of -42 and a strong improvement from the prior -49.5 reading. The stronger vote of confidence came as Europe’s largest economy seemed to be scoring a decisive win in its fight against the coronavirus.
“If Germany is turning a corner sooner than many are expected, that will provide a major speed bump in gold’s run to record territory,” said Ed Moya at online trading platform OANDA. “The path is still likely to be higher for gold, but continued optimism that the rest of Europe is turning the corner could derail a quick return to back above the $1700 level.”
Moya added that if downside pressure persisted, gold could find major support in the $1630-$1650 region.