empty
 
 
24.03.2020 04:47 PM
Fed gives hope to gold

This image is no longer relevant

Gold ignored the Federal Reserve's interest rate cut by 100 basis points, falling to the lowest levels since November last year. However, the precious metal sharply jumped against the background of the regulator's statements about unlimited purchases of Treasury and mortgage bonds.

According to experts at Goldman Sachs, gold has reached an inflection point and will rise to $1,800 per ounce over the next 12 months.

The bank believes that thanks to huge injections of liquidity, the Fed managed to prevent a crisis of solvency, and in the near future, investors will focus on the central bank's balance sheet, the increase of which will contribute to the weakening of the US dollar. This will allow gold to spread its wings.

The main reason for the March sales of precious metals was the stress on the financing markets. The demand for the greenback, both inside the US and outside the country, to repay USD-denominated debts was off the scale. The Fed managed to dampen this demand only with the help of unlimited asset purchases and currency swaps with 14 central banks of the world.

At the same time, the simultaneous decline in the value of gold and the S&P 500 index should not surprise anyone. This happens quite rarely and most often during periods of global financial crises. In particular, this was the case in 2008, when the precious metal first fell in price after the US stock indexes by 20%, to $700 per ounce, but then it rose to $1,900, reaching record values.

The magnitude of the crisis provoked by the coronavirus is likely to be much more serious than in 2008, as, indeed, is the Fed's response. The regulator not only intends to buy an unlimited number of US treasury bonds, but also intends to become a lender of last resort.

If the Fed really managed to prevent a solvency crisis and thereby eliminate the main bearish XAU/USD driver, then in the medium term uncertainty about the impact of the coronavirus epidemic on the global economy, low interest rates and the vulnerability of major world currencies weakened by aggressive monetary expansion by central banks issuers should help gold return above $1,700 per ounce.

Viktor Isakov,
Analytical expert of InstaForex
© 2007-2024
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST
  • Chancy Deposit
    Deposit your account with $3,000 and get $8000 more!
    In March we raffle $8000 within the Chancy Deposit campaign!
    Get a chance to win by depositing $3,000 to a trading account. Having fulfilled this condition, you become a campaign participant.
    JOIN CONTEST
  • Trade Wise, Win Device
    Top up your account with at least $500, sign up for the contest, and get a chance to win mobile devices.
    JOIN CONTEST
  • 100% Bonus
    Your unique opportunity to get a 100% bonus on your deposit
    GET BONUS
  • 55% Bonus
    Apply for a 55% bonus on your every deposit
    GET BONUS
  • 30% Bonus
    Receive a 30% bonus every time you top up your account
    GET BONUS

Recommended Stories

Can't speak right now?
Ask your question in the chat.
Widget callback