Gold Climbs More Than 4% – Fed took new measures

Gold prices jumped more than 4% on Monday, reversing previous losses. Investor confidence was boosted by the Fed’s aggressive new measures to combat the economic impact of the coronavirus outbreak. The Federal Reserve announced that the US central bank would very aggressively buy more securities. 

The metal prices climbed from modestly higher levels to sharp gains. Spot gold advanced 4.1% to $ 1,559.55 an ounce. Gold futures in the United States, meanwhile, rose 5.5% to $ 1,567.60 an ounce.

Coronavirus is threatening the US economy

The Covid-19 outbreak continues to spread worldwide. The US economy shutting down even further as many states, including New York and California, have been locked down by their governors. The country is in a shortage of medical supplies. Local health officials now called for the public to any supplies that they have at home, such as masks and gloves.

China-U.S. relations are becoming more strained. Last week, President Trump referred to Covid-19 as the “China virus,” which has irritated the Chinese people.

Analysts say that US economic growth estimates from the most significant investment banks are becoming increasingly desperate. Last week, J.P. Morgan anticipated GDP to decline 14 % in the second quarter of this year, Goldman Sachs sees a 24 % fall, while the recent forecast by Morgan Stanley is even gloomier, expecting a 30 % drop. 

However, the worst projections are coming from a Fed official, James Bullard, who stated that unemployment might strike 30% and the GDP declined 50% in the 2nd quarter. The scariest situation is that it turns into a credit crisis that will break the financial system, said Bullard.

Gold had lost its value

The precious metal has lost almost 2% so far in March, as a collapse in the stock markets led investors to liquidate the bullion to meet so-called margin calls. Gold ceased serving as a refuge. There was an outflow of capital from everywhere because investors were undoing their positions. It was not technical or fundamental: everything was panic. Investors continued to accumulate cash. 

According to the published note, the increase in national closings due to the coronavirus threatens to overshadow the stimulus measures of the world central banks to combat the economic damage of the pandemic.

Stephen Innes of AxiCorp said that there was a fear that central banks may have to sell gold to buy dollars, while the US currency continues to strengthen. Thus, the dollar remained close to a maximum of three years, amid an acceleration of the flight to cash.

In other precious metals, silver rose 4.9% to $ 13.19 an ounce, in its third straight session. Platinum gained 3.8% at $ 634.32 an ounce and palladium rose 1% to $ 1,658.50 an ounce.