Why Should Investors Diversify with Gold Today?
Gold steadies near 1-month peak as recession risks rise
Gold prices held steady near a one-month high on Monday, supported by growing concerns over the extent of the economic hit from the coronavirus pandemic. Spot gold was up 0.1% at $1,690.08 per ounce by 9:16 GMT, having risen to its highest since March 9 on Friday. Most European markets are closed for the Easter Monday holiday. U.S. gold futures fell 0.6% to $1,741.40.
"Gold has been on the positive side from the last two to three weeks; mostly it's safe-haven buying and the main reason is that the global economy is likely to face a recession because
of the COVID-19 issue," Hareesh V, head of commodity research at Geojit Financial Services, said. More than 1.8 million people have been infected by the coronavirus globally and 113,849 have died, a Reuters calculation of the totals shows. The coronavirus pandemic, which has battered global economic growth, has forced nations to extend lockdowns to curtail its spread, and central banks have announced a wave of fiscal and monetary support measures to mitigate the financial toll.
The U.S. Federal Reserve on Thursday announced a broad, $2.3 trillion stimulus package to weather the outbreak, which has forced 16.8 million Americans to file for unemployment benefits since the week ended March 21. "COVID-19's deflationary effect has been a headwind for gold. But this trend should reverse in 2H20 as policy responses by governments and central banks gather traction, UBS analysts said in a note. "Led by Fed easing, we now expect real U.S. interest rates to dip deeper into negative territory and perhaps even test the post-GFC (global financial crisis) lows," UBS said.
Gold is highly sensitive to interest rates, as lower rates reduce the opportunity cost of holding non-yielding bullion. Reflecting appetite for bullion, holdings in SPDR Gold Trust GLD, the world's largest gold-backed exchange-traded fund, rose 0.6% to 994.19 tonnes on Thursday. European Union finance ministers also agreed on half-a-trillion euros worth of economic support, but left open the question of how to finance recovery in the bloc. Among other precious metals, palladium rose 2.9% to $2,233.96 per ounce, while platinum dipped 0.7% to $743.06 and silver fell 0.3% to $15.27.