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Why does gold suddenly plummet?

UNITED STATES (OBSERVATORY NEWS) — As the precious metal took advantage of its safe haven status since the start of the coronavirus epidemic, it suddenly plunged 3% on Friday, February 28. It fell below $ 1,600 an ounce, unheard of since 2013.

Wind of panic on the world markets. The coronavirus health crisis caused serious concern among investors and now affects even the most stable of investments: gold. However, the precious metal has continued to climb since the start of the epidemic, taking advantage of its status as a safe haven.

A situation that suddenly reversed this Friday, February 28, details Bloomberg.

In the midst of the stock market routs around the world, gold thus lost up to 4.5% in session to fall below the mark of 1,600 dollars an ounce. A very rare situation which shows the panic of investors faced with an epidemic whose risk of spread is “very high”, according to the World Health Organization.

Faced with these alerts, traders therefore decided to sell gold to cover the losses caused by the health crisis or in the context of margin calls.

Wall Street in crisis

Indeed, every day, traders deposit securities for their financial transactions. When the value of securities drops, explain Les Échos , a call for funds is required. Professionals must quickly find liquidity and urgently dispose of safe assets.

This is what happened on Friday February 28 with the gold. An impressive event, but one that does not usually last over time.

“In the past it was short-lived, this global shock should, ultimately, drive the rate down across the world,” said Stephen Ines at AxiCorp.

A situation which should, within a few days or weeks, allow gold to regain color and recover value.

The fact remains that these sudden falls, for a safe haven reputed for its stability, show the crisis that is shaking global finance in the age of the coronavirus.Wall Street closed on Friday on its heaviest weekly losses since October 2008, at the peak of the global financial crisis.

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