Spot gold rallied in early Asian trading on Tuesday after hitting the $1, 600 / oz mark. Rising expectations that the federal reserve and other central Banks will ease policy to boost the global economy, which has been hit by a new outbreak of pneumonia, have boosted gold prices, analysts said. Gold is also expected to be affected by the results of super Tuesday, a day when 14 states hold primary elections. In addition, G7 finance ministers and central bank governors will hold a conference call on Tuesday to discuss measures to deal with the outbreak.
Gold prices fell sharply on Friday as traders unwound positions amid a global market sell-off triggered by a coronavirus.
However, gold rebounded on Monday on rising expectations of interest rate cuts by central Banks around the world. In early Asian trading on Tuesday, gold extended its rally, having just touched the $1, 600 / oz mark.
“We are seeing a slight recovery since late last week, when there was a lot of selling to generate liquidity and cover margin,” said Ryan McKay, commodity strategist at td securities. There is a lot to expect from the fed and other global central Banks. It provides very good support.”
“This virus may prompt the central bank to act more aggressively so that we can cut rates further,” McKay said. Over the long term, gold is attractive as a hedge against real interest rates, which should be very low or negative.”
Gold prices fell sharply on Friday as investors took profits to cover losses in other markets, RBC said. Gold could be a good buy point right now as concerns about the spread of a new outbreak of pneumonia peak.
European central bank President Christine Lagarde said on Monday: the ECB is ready to take appropriate action if necessary. Fed chairman colin Powell said on Friday the fed would “take appropriate action” to support the economy in the context of the outbreak.
The probability of a 50-point fed rate cut soared to 100%
National economic adviser Jeffrey Kudlow and Treasury Secretary Steven mnuchin on Monday expressed support for the fed’s emergency rate cut. US President Donald trump’s team is weighing a response to the new coronavirus to contain its economic impact.
Futures are now pricing in a 50 basis point cut at the fed’s monetary policy meeting on March 18.
According to CME fed watch, there is a 100% chance that the fed will cut rates by 50 basis points to 1.00% to 1.25% in March. There is a 26.1 percent chance of a 50 basis point cut to 1.00% to 1.25% by April, and a 73.9 percent chance of a 75 basis point cut to 0.75% to 1.00%.
Lower interest rates reduce the opportunity cost of holding non-yielding gold and weigh on Treasury yields and the dollar.
Goldman sachs economists expect the fed to cut rates sharply, perhaps before its next scheduled meeting in two weeks, calling Friday’s unscheduled statement by fed chairman colin Powell a clear signal.
Fed chairman colin Powell said on Friday the central bank was monitoring the risks posed to the us economy by the new coronavirus and pledged to act if necessary.
“The fundamentals of the U.S. economy remain strong,” he said. However, coronaviruses pose an evolving risk to economic activity. The fed is closely monitoring developments and their impact on the economic outlook. We will use our tools to take appropriate action to support the economy.”
Goldman sachs said Mr Powell’s speech “strongly implied a rate cut at the March 17-18 FOMC meeting, even before that”.
Goldman sachs expects the fed to cut rates by 50 basis points by March 18, followed by another 50 basis points in the second quarter, for a total of 100 basis points.
Bank of America economists now expect the Fed to cut interest rates by 50 basis points at its march meeting to stem market panic and support economic growth. Whether to make an emergency rate cut before the meeting will depend on the extent of market failure. Bank of America is confident that the fed will respond to recent market performance. The only issue at issue is the timing and scale of the fed’s actions.
The G7 will hold a conference call to discuss measures to deal with the outbreak
Finance ministers and central bankers from the group of seven leading economies will hold a conference call on Tuesday to discuss measures to address the outbreak and its economic impact, a Treasury spokesman said on Monday. The call will be hosted by U.S. Treasury secretary Steven mnuchin and federal reserve chairman colin Powell.
It will be a “coordinated call” for the financial and economic response to the virus, according to one source.
The call is scheduled for 7 a.m. Edt, just before the U.S. market opens, the sources said. CNBC has learned that a communique will be issued after the meeting.
The organisation for economic co-operation and development warned on Monday that the outbreak had plunged the world economy into its worst downturn since the global financial crisis and urged governments and central Banks to fight back to prevent a further downturn.
U.S. President Donald trump noted on Monday that the administration is considering tightening travel rules. He said he did not see a need to declare a national state of emergency, but that it was still possible.
Tedros adenom gebreyesus, director-general of the world health organization (who), said the agency’s staff in Iran have been confirmed to be infected with the new coronavirus, Russia’s sputa news agency reported Wednesday.
“A staff member of the who regional office in Iran has tested positive for the new coronavirus, and his condition is currently in the medium range,” gebreyesus said. Mr. Gebreyesus said the agency’s team arrived in Iran on March 2, and that the world health organization had provided Iran with additional drugs to support the fight against the new coronavirus. The number of confirmed cases of the new coronavirus in Iran has risen from 593 to 978, with a total of 54 deaths, a health ministry spokesman said Tuesday.
The world health organization on Friday raised its coronavirus threat assessment around the world to “very high” levels. “We have now raised our assessment of the risk of transmission and impact of the novel coronavirus to a very high global level,” said who director-general Tedros Adhanom Ghebreyesus.
Super Tuesday begins in us
Another factor that could drive gold higher is the us presidential election, analysts said. On March 3, the United States will usher in “super Tuesday,” when 14 states hold primary elections.
Meanwhile, there will be 16 democratic presidential primaries, the outcome of which will largely determine who gets the nomination. Democratic candidate Bernie Sanders is likely to win.
“Politically, we are ready for super Tuesday,” said Chris Weston, head of research at Pepperstone. “there are high expectations that Bernie Sanders will do well here — gold is a clear hedge against political anxiety.”
Former Vice President Joe Biden has a commanding lead in the south Carolina democratic primary with a crucial victory that could reverse a losing streak and lead to super Tuesday, when 14 states hold primaries at the same time, according to exit estimates from Saturday’s polls.
The rivalry between Mr. Biden and Mr. Sanders has been used by us public opinion to symbolize the battle of the Democratic Party’s “establishment” and “radicals”.
In South Carolina, meanwhile, African-American voters make up about half the state’s population. The primary is seen as a real test of whether candidates can appeal to African-American voters.
Mr. Sanders still holds a lead in California and Texas, the two big voting states, according to multiple polls. Biden also faces a challenge from former New York mayor Michael Bloomberg.