gold should react positively' as U.S. rates, dollar fall
Declining U.S. interest rates and pressure on the U.S. dollar should keep boosting gold prices, said Credit Suisse.
The metal has risen sharply since the Federal Reserve’s move on Tuesday to cut interest rates by 50 basis points in an attempt to limit economic damage from the spreading coronavirus. U.S. Treasury 10-year yields since have hit record lows. “We remind investors that one of the strongest historical relationships is between [the] gold price and U.S. interest rates/USD [U.S. dollar],” Credit Suiise said. “As rates go lower and there is increased pressure on the USD, gold should react positively, and we expect this effect to be longer-lasting than near-term coronavirus fears.”
Gold keeps rising amid a “mini-meltdown” in financial markets globally, said Marc Chandler, managing director of Bannockburn Global Forex. The tumble in U.S. equities and Treasury yields on Thursday led to big drops in Asia-Pacific markets overnight, and European stock bourses are also on the defensive. Further, stock-index futures are pointing to another lower open on Wall Street. “U.S. shares are trading heavily, and the early indication is for an opening loss of more than 1%,” Chandler said. “Core bonds are on fire.” The yield, which moves inversely to the price, on U.S. Treasury 10-year notes was off by 15 basis points to around 76 basis points as of Chandler’s research note, falling almost 40 basis points this week. “The dollar's safe-haven status is being tarnished,” Chandler said. “It is lower against all the major currencies, and many emerging-market currencies, where Eastern and Central European currencies lead the advancers….After advancing 2% yesterday, gold is pushing higher still.” The metal, often bought as a safe haven when other markets are spiraling downward, was up $15.20 to $1,687 an ounce as of 8:02 a.m. EST.
Gold has gained over 5% this week as a result of coronavirus fears, speculation around central-bank easing, global economic-growth concerns and a weakening U.S. dollar, said Lukman Otunuga, senior research analyst at FXTM. “The general uncertainty and current risk aversion should support the precious metal due to its safe-haven nature,” Otunuga said. “Going forward, with the dollar set to weaken on Fed rate-cut bets, prices could retest $1,700 if $1,681 is breached.” After the analysts research note, gold in fact did climb above that $1,681 level, with spot metal up another $14.30 to $1,686.10 an ounce as of 7:52 a.m. EST.
source: www.kitco.com
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