Gold chalks up record highs amid fears over coronavirus spread
Gold briefly chalked up another record Tuesday before easing later in the day as the dollar clawed back earlier losses, while equity markets struggled to hold on to gains with fears about the coronavirus pandemic mounting.
With worrying new spikes in infections in Asia and Europe—on top of the already-high new US cases—forcing governments to impose strict containment measures, the global economic outlook remains clouded, putting the brakes on a months-long stocks rally.
The virus uncertainty descending on trading floors, combined with China-US tensions, sent gold soaring nearly 30 percent and on Tuesday it hit another record of $1,981.27, smashing the previous day’s all-time high, but it later pared the advance to sit lower for the day.
But observers say $2,000 could be broken as early as this week, with focus on the Federal Reserve’s next policy meeting, which is tipped to see it unveil more easing measures to support the world’s top economy.
US second-quarter economic growth data is also due this week, and a disappointing reading on what is expected to be a historic contraction could fuel further dollar weakness.
“Although little is expected on policy, (bank boss Jerome) Powell’s tone in the press conference will be key especially in light of the recent uptick in virus cases and the knock-on consequences,” said AxiCorp’s Stephen Innes.
The unfailing barometer of bad economic times to come - a high and rising gold price. pic.twitter.com/gMRs9eAggU— Peter Hitchens (@ClarkeMicah) July 28, 2020
The rush for bullion has also dragged silver to a seven-year high above $26 an ounce before that also edged back.
“There seems to be enough momentum in the US money supply to actually push gold higher,” Fat Prophets analyst David Lennox said.
“As COVID-19 continues to ravage the economy, there’s probably more stimulatory action to come. As the US dollar weakens, obviously gold will improve, but it’s more a matter of the acceleration of US money supply, and that’s caused by governments obviously throwing money into the economy.”
There are hopes US lawmakers can hammer out a new economy-boosting stimulus programme as their previous multi-trillion-dollar package begins to dry up.
After an extended period of haggling with the White House, Republicans eventually unveiled a $1 trillion scheme that slashes unemployment benefits by two-thirds.
However, there are concerns bipartisanship could make the passage of any bill arduous, with Democrats proposing $3.5 trillion of spending, while House Speaker Nancy Pelosi branded the Republican offer “pathetic” and not enough to support the country.
All three main indexes on Wall Street ended higher.
Hong Kong and Shanghai ended up 0.7 percent, while Seoul jumped 1.8 percent and Mumbai put on 0.9 percent.
Manila also put on more than one percent.
Taipei was marginally lower a day after hitting a record high, though market heavyweight chipmaker TSMC rose 10 percent for a second day, putting it among the top 10 biggest firms in the world briefly before it pared the gains.
Tokyo finished down 0.3 percent and Sydney shed 0.4 percent with Jakarta and Wellington also in the red.
London and Frankfurt started with gains though Paris dipped.
“The economic data is absolutely disastrous and the profit outlook isn’t so great either and yet we’ve seen this big rebound in the markets,” Terri Spath, at Sierra Investment Management, said.
“The reality is that the Fed has proclaimed that they are going to keep the printing presses rolling, they will print money and it has created this all-you-can-eat buffet.
“The data doesn’t support this and so expect volatility, expect drawdowns going forward. The bottom may be in for the year, but we do expect volatility in the future.”
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