Gold Nears Record High as Yields Collapse & Volatility Rages

March 8, 2020

New York (Mar 8)  A massive leap in spot gold price action over the last five trading sessions pushed the precious metal up to another fresh year-to-date high and its strongest close since January 2013. The eye-popping 5.5% rally in gold prices last week, propelled by a stunning drop in Treasury yields and pop in volatility, was the largest weekly gain since October 2011. Gold now looks within arms-reach of its record highs near $1,900 per ounce, but can spot prices make it there?


Gold Price Chart Gold Forecast Treasury Yields Fed Rate Cut

Chart created by @RichDvorakFX with TradingView

Investor sentiment and global GDP growth outlook have been battered by the brewing coronavirus pandemic that began in Wuhan, China nearly two months ago. Demand for safe-haven assets has swelled in response, which overwhelmingly caused the recent collapse in sovereign interest rates and jump in gold prices.

Recession risk continues to mount on the back of the novel coronavirus outbreak, or COVID-19, as it delivered a paralyzing shock to the global supply chain and now begins to cripple consumer confidence. The Federal Reserve certainly has taken notice of escalating downside risks faced by the US and global economy due to COVID-19.

This is considering the emergency 50bps rate cut delivered by a unanimous FOMC last Tuesday. It was the first inter-meeting Fed rate cut since August 2008 amid the global financial crisis and collapse of Lehman Brothers.


With the Federal Reserve looking to reassure panic-struck markets, by making financial conditions more accommodative and capitulating to dovish rate cut bets, traders might force the hand of Fed Chair Powell and the FOMC to ease further at the next scheduled interest rate decision on March 18.

The Fed is expected to lower its policy interest rate target by 63-basis points at its next monetary policy update according to Fed funds futures pricing. There are 88-basis points of Fed interest rate cuts priced in by year-end. This trend of ballooning FOMC rate cut bets, if continued, could catapult gold to record highs notched in August 2011.

Another monetary policy powerhouse – the European Central Bank – is expected to provide its own interest rate decision this coming Thursday, March 12 at 12:45 GMT. The ECB Governing Council is expected to leave its key interest rates unchanged according to market consensus.

However, as the coronavirus begins to plague Italy and grip the EU, there has been a collapse in Eurozone inflation expectations and notable rise in recession risk. In turn, this may entice dovish ECB guidance and/or action, which likely stands to help gold prices extend higher than they have already.


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