The Federal Reserve announced a new round of stimulus. This round of stimulus includes Treasuries and mortgage-backed securities. This leads to gold futures continuing growth as US benchmark indexes increased from the Federal Reserve’s move.
Why is gold futures gaining? What is going on with the economy?
So far, gold futures gained as global stocks traded lower. This lower trade is a direct result of the coronavirus fears. Because the US dollar and stock market weakened, safe-haven demand is up. Gold began already up about $50 Monday morning, so far, after the Fed’s announcement of the stimulus. Check here for updates anytime on the gold price.
What also fuels fears to invest in precious metals is the anticipated rise in unemployment and concerns about the impending global recession. The St. Louis President of the Federal Reserve stated on Sunday that he anticipates the unemployment rate to reach 30%. This expected to be worse than the Great Depression and three times worse than the 2008 financial crisis.
Also, investment bank Morgan Stanley announced “Economic activity has come to a near standstill in March. As social distancing measures increase in a greater number of areas and as financial conditions tighten further, the negative effects on near-term GDP growth become that much greater.”
What is the future for gold?
The future is not very certain for gold. While gold and gold futures tend to do well in times of declining stocks, this is an unprecedented time. In 2008, gold prices fell but reached all-time highs not too long after.
So far, prices for precious metals are rising this week, but its liquidity could be what investors are more focused on. Comex April Gold Futures rose over $1550 an ounce today. Prices last Wednesday for silver dropped and settled at the lowest since January 2009. This week, however, Silver for May is up around 4% to $12.895 an ounce.
Gold as a safe-haven asset has some drawbacks because while it has intrinsic value, investors have felt forced to sell it off in times like these. That is why the price has been fluctuating for the past few weeks now. which also includes gold futures. There might be high demand for it, but prices for all precious metals continue to be impacted by the selloffs as people exchange their hedge funds for cash. Now that the dollar is decreasing according to the US Dollar index, people might be running back to gold to secure some safety for the impending recession. MKS PAMP also thinks a recession is coming in addition to loose monetary and fiscal policies, which will make the gold price trade higher.
Bitcoin and Gold
Lastly, similar to gold and gold futures, Bitcoin is also up. People appear to be investing in it again as a result of stress and fears stemming from the coronavirus. Currently, Bitcoin is at a 2-year high correlation with S&P500 after recovering 80% in one week. This puts cryptocurrencies into a bearish market. This recent market downturn led to a high correlation between Bitcoin and traditional financial markets according to a 3/20 Tweet by Santiment.
Source: Coin Desk
Bitcoin is currently being treated in a similar way to gold: as a means to an end. Investors are looking for liquidity anywhere they can find it. In this case, it is about buying low and selling high as quickly as possible. But, many investors might also choose to hang onto their safe-haven assets during this uncertain time. Gold and bitcoin will fluctuate as the world combats the spread of the coronavirus.
Bullion Exchanges is your trusted precious metals retailer located in the heart of Midtown Manhattan’s Diamond District. Unfortunately, we temporarily closed our storefront and office until further notice from the impact of the coronavirus. This is effective at the end of the day on March 20th. Online orders might take between 15-30 days for shipping and handling. We are eager to return to work in April when we will continue to handle products with the highest level of care. Our inventory includes bars, coins, and rounds in a variety of gold, silver, platinum, and palladium products. Bullion Exchanges thanks you for your patience as we work through our high volume of orders and customers. We will resume in limited operation in April. Until then, we wish our customers good health for you, your families, and your communities.
Disclaimer. This article is not meant to serve as professional economic advice. Any action you take upon the information from this article and website is strictly at your own risk.