But investors are still flocking to the precious metal in the hope of a rebound and protection against an even worse fall in other assets, from stocks to currencies and bonds.
Gold has erased almost all its gains for the year and fell 3 per cent on the week to trade at $1,503 a troy ounce in early trading on Friday.
But on Thursday, gold-backed exchange traded funds received inflows of 2.6m ounces, equivalent to the annual gold production of a mid-tier mining company such as Australia’s Newcrest Mining. Total holdings in gold-backed exchange traded funds were at a record of over 3,000 tonnes in February, according to the World Gold Council.
Online gold exchanges, which sell physical gold directly to customers said they had seen record buying volumes. BullionVault, which allows investors to buy and store gold and silver bars, said net demand had reached a level not seen since the depths of the financial crisis in March 2009.
“If you’re looking for a safe haven you’re not going to find one today, tomorrow or next week,” Adrian Ash, director of research at BullionVault, says. “But if you’re looking for something that historically has gone up when stock markets have gone down over longer periods then gold is the answer.”
Analysts said hedge funds and speculators were selling liquid assets such as gold to cover for losses and margin calls sustained in the largest stock market crash since 1987’s “Black Monday”. So-called “risk parity” funds, automated investment vehicles that are designed to do well in almost any market environment, also sold gold as bonds and equities fell.
“The yellow metal is a liquid and broadly held asset, and profit-taking activity and margin calls for other underperforming markets likely prompted the initial sell-off,” said analysts at Citi.
On Monday gold fell to as low as $1,451 a troy ounce, its lowest level since early December, while platinum fell to a 17-year low. As of Friday the gold has lost almost $200 from its year high of $1,703 a troy ounce on March 9.
“It’s a case of selling anything,” Ross Norman, a gold market veteran and former trader for Credit Suisse, said. “If you’re sitting on a profitable asset you’re going to sell gold to pay for margin requirements. If you have a piggy bank you are going to raid it.”
Gold was also dumped during the global financial crisis, as leveraged funds turned to assets they could easily convert to cash. But the selling did not persist and the precious metal eventually rallied 45 per cent from an October 2008 low. The S&P 500, in contrast, did not bottom until March 2009 and in the intervening period fell 30 per cent.
“It’s not history repeating itself; it’s rhyming very closely,” said Will Rhind, chief executive of ETF company GraniteShares. “In a market which is indiscriminately liquidating all assets then gold is not immune to that. There’s a first wave of selling which includes gold because it’s one of the highest-quality assets in the portfolio.”
Investors said central banks’ efforts to combat the impact of coronavirus should reduce volatility in markets and drive money back into gold, once the dust settles.
“With financial markets in turmoil, economic activity collapsing and policymakers implementing the largest injection of stimulus since the global financial crisis, there is significant potential for a recovery of gold and gold equities in the coming weeks and months,” said Baker Steel Capital Managers.
However, others were more cautious, saying that if global economies recover gold could fare badly.
“While gold is an asset that people often turn to in times of crisis, if fears over the spread of coronavirus ease and, as a result, there is more confidence in global economies and stock markets, then the demand for gold could fall back and the price would fall,” said Patrick Connolly, a chartered financial planner at Chase de Vere.
Additional reporting by Lucy Warwick-Ching