Gold has regained its shine. The precious metal is up nearly $100 so far this week and the precious metal just managed to eke out fresh multi-year highs. In my opinion, three things are driving gold higher at the moment.
Firstly, gold appears to be “playing catch up” to the rest of the market. As most of you will remember, in late-February we saw some CRAZY moves across other asset classes; global equities fell into correction territory within a week (defined as a 10% decline from recent highs), crude prices were crushed, developed economy bond yields fell to all time lows and higher yielding G10 currencies (namely, USD and CAD) have been getting absolutely smashed. Yet at the time gold did very little. Now it appears to be coming to the party late, or catching up on the crazy moves that we have seen across these other asset classes.
Secondly, the risk picture is continuing to worsen which, given its status as a safe haven asset, should benefit gold. International Covid-19 numbers continue to rise, with cases rapidly jumping in the US, Europe and the Middle East. US and European countries have so far been less aggressive in their attempts to contain the virus than was China, implying that the outbreaks we see in these countries might be worse than what we saw in China. The worse things get, the better for safe havens such as gold, and I expect things to get MUCH worse.
Thirdly, gold loves central bank easing and its looks like we are on the cusp of a HUGE global central bank easing cycle. The Fed has already axed rate by 50bps this month and is seen making more cuts at the 18th of March FOMC meeting. The BoC has also cut by 50bps, the RBA by 20. The BoE is expected to go somewhere between 25 and 50, as is the RBNZ. Even the ECB is expected to go 10. All of this central bank easing, which is growing ever more likely the worse the Covid-19 outbreak gets, points to higher gold prices.
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