Spot gold held up near $1, 535 an ounce in early Asian trading on Wednesday, rising sharply on Tuesday as the federal reserve restarted purchases of short-term corporate debt during the financial crisis, providing support. In addition to the fed’s latest action, the White House is seeking a $1 trillion stimulus package, which sparked a rally in U.S. stocks on Tuesday that sent the dow Jones industrial average soaring more than a thousand points. Stock markets in Asia Pacific were generally higher in early trading on Wednesday.
The federal reserve’s “killer card”
On Tuesday, the federal reserve, under its authority under section 13, section 3, of the federal reserve act, launched the commercial paper financing facility (CPFF) and the primary dealer credit facility (PDCF), both of which were created in 2008.
Financial markets were encouraged by the news, with the dollar index extending its advance to a new session high of 99.78. Spot gold jumped to $1,550 an ounce, up nearly $90 from session lows. The three major U.S. stock indexes rallied violently.
The federal reserve announced it would support the flow of credit to households and businesses by creating a commercial paper financing facility. The fed also announced a special credit facility to buy the corporate paper from issuers struggling to find buyers in the open market, a move widely anticipated on Wall Street. Corporate notes involve unsecured short-term loans.
The fed said the commercial paper market had come under “considerable stress” in recent days as a result of the outbreak. It would support the flow of credit to households and businesses by establishing commercial paper financing mechanisms. The mechanism should eliminate market risk and improve the ability of companies to maintain employment and investment during outbreaks.
The fed said the Treasury would provide the fed with $10 billion in credit protection, which would come from the Treasury’s foreign exchange stabilization fund.
Randall Kroszner, a former fed governor, said in an interview on CNBC: “This is a key market, basically a market for short-term corporate borrowing. If you can’t get this short-term loan, you can’t get the money, you can’t pay your employees, you can’t pay your customers. If it all freezes up, then there’s a real problem.”
This is not a new tool, writes Zerohedge, a financial blog. It was first launched on October 7, 2008, just after the collapse of Lehman prompted money market funds to “break the buck” and the fed needed to bail out Banks. Usage at the facility quickly grew to $350 billion after its launch but dropped to zero the following year with the QE1 program.
During the 2008 financial crisis, markets did freeze, and the fed’s task was to find a way to get them working again.
In an emergency move announced Sunday, the federal reserve cut its benchmark borrowing rate to near zero. The fed also said the same day it would buy an additional $700bn of treasuries and mortgage-backed securities. On Monday and Tuesday, the fed also announced further injections into the overnight money market, the repo market where Banks conduct short-term funding operations.
In addition, regulators are said to be considering stimulus measures to tackle the new crown pneumonia outbreak. Us federal regulators are considering whether to relax liquidity rules for domestic Banks to help reduce pressure from the new pneumonia outbreak, sources said.
The Treasury Department’s office of the comptroller of the Currency (OCC) is considering relaxing its 2013 rules on leveraged loans, the source said. The move would remove some restrictions on bank lending to companies deemed risky, potentially freeing up capital for companies in the energy sector hit by the public health crisis and a slowdown in global economic activity.
In a televised address to the state on Tuesday, gov. Jim Justice of West Virginia announced the state’s first diagnosis but stressed that there was no need to panic. So far, new cases of pneumonia have been confirmed in all 50 states.
According to the real-time data released by Johns Hopkins University, as of 7 am Beijing time, the total number of confirmed cases in the United States reached 6233, with 105 deaths.
The White House is mulling a $1 trillion stimulus plan
The trump administration is discussing a plan that could involve as much as $1.2 trillion in spending to stem the economic impact of the new outbreak, including a direct payment of at least $1,000 to every American within two weeks.
Us Treasury secretary Steven mnuchin and US President Donald Trump announced to reporters at the White House on Tuesday that the US Treasury Department will unveil an economic stimulus package worth about $1 trillion, CNBC reported.
Mr. Mnuchin said us taxpayers could also defer their tax payments for 90 days. Mr. Mnuchin said a “check” could be sent to Americans in the next two weeks to contain the economic impact of the new coronavirus crisis.
Mr. Mnuchin has proposed sending a $250 billion check by the end of April and then sending a $500 billion check four weeks later if the U.S. remains in a state of emergency, according to people familiar with the matter. The payouts will be part of a stimulus package that Mr. Mnuchin is negotiating with congress. The Trump administration is said to have not yet decided how much it will payout but hopes it will be more than $1,000 per person.
New York (ap) — the dow jones industrial average ended up more than a thousand points higher Tuesday as Wall Street was buoyed by a White House plan that could pump $1 trillion into the U.S. economy to cushion the impact of the coronavirus.
The dow closed up 1048.86 points, or 5.20%, at 21237.38. The NASDAQ gained 430.19 points, or 6.23%, to 7,334.78. The s&p 500 gained 143.06 points, or 6.00%, to 2,529.19.
CNBC, citing White House officials, said a $1 trillion “gift package” was possible: $150 billion to $550 billion in tax cuts; 2)200 billion-300 billion us dollars to support small and micro businesses; 3)50 billion -100 billion us dollars to support aviation enterprises and related industries.
Gold prices rebound sharply gold market opportunity?
Gold prices rose on Tuesday as a five-session decline in the gold market led to a flood of bargain hunters. News that the federal reserve had restarted its crisis-era purchases of short-term corporate bonds and that the White House was mulling a $1tn stimulus package provided further support for gold.
Spot gold touched as low as $1,465.30 an ounce on Tuesday and rose as high as $1,552.80 an ounce, up to $14.38, or 0.98%, to $1,528.44.
Bob Haberkorn, the senior market strategist at RJO Futures, said: “the fact that the fed is stepping in and they’re putting more liquidity into the market is helping gold go higher. Gold is starting to behave as it should.”
Gold, traditionally known as a “safe haven”, usually does well during market sell-offs, but it was not immune to last week’s sell-off in global equity markets as the coronavirus pandemic spread.
Analysts said global equity markets could rebound if fears ease, which could ease pressure on investors to cash in on margin calls.
Gold is down nearly 10% from last week’s seven-year high. Gold fell 5.1 percent to its lowest level since November 2019 and fell below its 200-day moving average on Monday.
Many precious metals analysts have been comparing gold’s recent decline to its performance during the 2008 financial crisis.
“The current sell-off in the gold market is similar to what happened during the financial crisis when gold prices fell for more than three months and equity valuations fell sharply as higher volatility and margin calls forced leveraged investors to sell gold to provide liquidity,” explains TD Securities commodity strategist.
But the bank said the sell-off was not only temporary but could lead to higher prices.
“If, as expected, the G7 central bank and government stimulus package is co-ordinated and real/nominal interest rates are at historically low levels, liquidity injections and income support programs should reduce volatility and again drive money into gold, pushing it to a new high of almost $1,800,” its strategists said.
This view is shared by many analysts in the precious metals sector. Bill Baruch, president of Blue Line Futures, told Kitco News on Monday that gold could recover in the medium term and even hit record highs in the next 12 to 18 months.
RBC Capital Markets is now viewing gold’s decline as a buying opportunity and expects prices to continue to rise.
“The gold rally was not and is not over,” said Christopher Louney, commodities strategist at the royal bank of Canada. On average, we expect gold prices to remain high into the second quarter, which means gold prices could meet or exceed our highest expectations in the first half of 2020, depending on how the economic crisis unfolds.”
Low-interest rates, volatile equity markets, low yields, and rising uncertainty are supporting gold’s rise.
Mr. Louney adds: “gold’s perceived role as a safe haven asset has contributed significantly to this move. We don’t think this represents the end of the safe-haven story, despite the sharp drop in gold prices.”
“There are a lot of fundamentals behind gold that are helping to push it higher,” said Michael Matousek, chief trader at U.S. Global Investors. Plus, given the stock market declines of the past two days, you do see technical issues. This is a great opportunity for people to get into the gold market.”