Past six to eight months have been quit pleasing for fold. There are plenty of good reasons to be optimistic about gold’s prospects.
The global economy and the financial system are already stretched to a breaking point and Demand for precious metals is heating up. This, of course, is plain for all to see, even As mainstream investors and analysts still refuse to face facts and prefer to focus on naïve hopes of an eternal expansion.
If we look at these factors in detail we can see that these risks will be going forward and creating a more uncertain atmosphere for gold which will further push prices higher.
The massive policy U-turn by the Fed certainly played a part, and so did the move by the ECB to resume its own easing policies and monthly asset buying spree. We have officially returned to loose monetary policies across the board, and this provided a boost to precious metals until now. Another important factor was the renewed interest in gold by institutional players, as demand from that side of the market also picked up significantly.
Bullion is rising at a time when U.S. stocks are at an all-time high even as traders weigh the global impact of the disease. While Hubei, the province at the centre of the outbreak, reported fewer cases after another revision to its counting method, there are signs of deepening economic damage. In addition, two deaths were reported in Iran, highlighting the threat outside China.
The coronavirus had a downward effect on most commodity prices. Since 20 January – the date of confirmation of human-to-human transmission – prices of energy and industrial metals have fallen significantly. The outbreak has grown exponentially since, and is expected to impact the global economy dramatically during Q1. But gold has rallied quite high compared to other metals.
The traditional haven has climbed more than 6% this year amid mounting concern over the effects of the virus, with companies from Apple Inc. to Burberry Group Plc cutting guidance. While minutes from the latest Fed meeting showed that officials indicated they could leave rates unchanged for many months, futures traders maintained expectations for at least one cut over 2020.
A market convinced that the Chinese slowdown will elicit further rate cuts in developed markets chose to ignore surprising rises in inflation in both the U.S. and U.K. earlier. U.S. factory gate prices rose 0.5%, taking the annual rate of producer price inflation to 2.1%, its highest since May, while the U.K. consumer price index rose more than expected to 1.8%, still below the Bank of England’s target but an upside surprise consistent with other strong data this week that have argued against further rate cut.
Gold traded near a seven-year high on concern that the coronavirus outbreak will retard global growth, coupled with speculation the Federal Reserve will ease monetary policy before the year-end.
In the domestic markets too, for the sixth consecutive day, gold prices touched life time high of Rs 41,636 per 10 grams in Mumbai's bullion market as demand for the safe-haven metal rose after Apple issued a warning that its sales would be impacted by coronavirus epidemic in China.
The rate of 10 grams, 22-carat gold in Mumbai was Rs 38,139 plus 3 percent GST, while that of 10 grams, 24-carat gold was Rs 41,636 plus GST.
Gold prices edged higher touching the $1,600 level as the death toll and the number of affected people due to the coronavirus outbreak continues to rise.
Warnings from Apple and HSBC that the epidemic was damaging their businesses lent support to the metal prices.
Gold prices hit a seven-year high on Wednesday as expectations of further monetary policy easing to cushion the economic impact of the Covid-19 outbreak.
Precious metals had to battle with a split-personality market, as demand for the ultimate haven asset was accompanied by a rebound in risk assets such as equities and oil. Bond yields, which normally fall when gold rises, rose by one to two basis points along the Treasury curve.
But given that China is already struggling with a huge corporate debt problem, some took the view that bailouts were likely to be followed by loan defaults and ever-greater problems with the Chinese financial system – a development that hardly makes havens like gold less attractive.
Support for the yellow metal is driven by economic uncertainty related to the coronavirus – i.e. how long could the pandemic last and what its ultimate impact will be on world economic grow.
Prithviraj Kothari is the author of this article. Find more information about Prithviraj Kothari.
