Following a half point rate cut last week, the metal has been surging to new, recent highs. Here’s what some analysts are predicting for the near future.
Last year, the change in global central bank monetary policies led by the Federal Reserve paved the way for one of gold’s most impressive performances in recent memory. The metal climbed to a six-year high during the second half of 2019 in a move that was largely attributed to successive interest rate cuts.
Numerous analysts have named the coronavirus as the catalyst that could push gold to new heights and possibly have it reclaim its all-time high. Most of these predictions, however, involved a flight-to-safety during a broad market selloff as economies begin to crumble under the weight of the pandemic.
Yet according to recent movement in the gold market, the coronavirus could indeed propel gold’s climb further, albeit through more familiar channels. Last Tuesday, the Fed performed what is essentially a double interest rate cut, slicing its benchmark rate by 50 basis points. This marks the first time that the Fed has performed an emergency rate cut outside of its scheduled meetings since 2008, and other central banks could soon follow suit.
Almost immediately after the cut was announced, the metal jumped 3.2% within the day, its highest daily climb since June 2016. The gains erased most of the losses that the gold market suffered during the previous week’s panic selloff. Since then, gold has kept climbing and currently sits around $1,660.
Ole Hansen, head of commodity strategy at Saxo Bank, said that gold investors have plenty to look forward to as the situation in the equities markets unravels further. Besides the high degree of uncertainty that the outbreak has brought to the table, Hansen also noted that these cuts have damaged the 10-year Treasury.
Despite its highly disappointing showings over the past few months, the 10-year Treasury remained one of the few safe haven choices available as countries across the globe settled into a new norm of negative-yielding debt right around the time that haven demand started gaining significant traction. Now, investors will have few options but to flock to precious metals in response to both the coronavirus and the questionable central bank policies that will come as a result.
Speculators believe that both the Bank of England and the Bank of Canada will once again follow in the Fed’s wake and perform emergency rate cuts over the days to come. With silver appearing to join gold in its ascent, the yellow metal now looks ready to capture the $1,700 level that many forecasters singled out as their short-term target.