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April 13, 2020

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.

*This information is solely an excerpt of a third-party publication and is incomplete. Please subscribe to the referenced publication for the full article. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.

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