Gold drops as risk appetite rises on signs of lockdown easingGold drops as risk appetite rises on signs of lockdown easing
FILE PHOTO: Gold rings are seen on display at a goldsmith shop in Kuala Lumpur

By Brijesh Patel

(Reuters) – Gold prices fell for a third straight session on Tuesday, as optimism about the easing of coronavirus-related restrictions drove investors towards riskier assets, while global recession fears capped bullion’s losses.

Spot gold was down 0.4% at $1,708.20 per ounce by 1059 GMT, after falling as much as 1.4% in the session. U.S. gold futures edged 0.1% lower to $1,722.20 per ounce.

“Gold has lost some of its shine on the assumption that easing lockdowns will bring a V-shaped recovery and with that less need for gold as a diversifier and hedge,” Saxo Bank analyst Ole Hansen said.

From Italy to New Zealand, governments announced the easing of restrictions, while Britain said its too dangerous to relax a stringent lockdown for fear of a deadly second outbreak. More parts of the United States looked set to restart business.

European shares hovered near two-week highs as traders cheered lockdown easing news, while a slate of strong earnings reports from companies outweighed a slump in oil prices.

“Weak physical demand is currently off-setting all the positive hype about gold and with that there is a risk of a period of consolidation and perhaps even lower prices,” Hansen said.

“Overall, however, we believe that the reasons that has brought gold to these levels will not go away when lockdowns are eased.”

Business shutdowns have led to a record 26.5 million Americans filing for unemployment benefits since mid-March and are likely to push the unemployment rate to 16% or higher in the next report.

Central banks around the world have rolled out fiscal and monetary stimulus measures to combat financial impact from the virus, which has infected about 3.03 million people globally and killed 210,263.

The focus now shifts to two major central banks policy meetings this week, following the Bank of Japan which expanded monetary stimulus on Monday.

Gold tends to benefit from widespread stimulus measures from central banks because it is widely viewed as a hedge against inflation and currency debasement.

“The demand destruction due to Covid-19 cannot be overstated, volatility in financial markets remains elevated and precious metals especially gold remains as good hedge in an investor’s portfolio of other financial assets,” said Avtar Sandu, senior commodities manager at Phillip Futures, in a note.

Elsewhere, palladium rose 1% to $1,944.39 an ounce and platinum gained 0.7% to $763.12. Silver dropped 1.1% to $15.11 per ounce.

(Reporting by Brijesh Patel in Bengaluru. Editing by Jane Merriman and Louise Heavens)