Gold Rose on British Rate Cut

Gold Rose on British Rate Cut

Gold rose on British rate cut early Wednesday. The Bank of England announced an emergency interest-rate cut triggered by fears about the cornavirus’s effect on the global economy. A delay in the release of U.S. President Donald Trump’s promised stimulus package and volatile equity and energy markets also sent the metal higher.

Currently, gold is hanging tough as the Dow once again plunges over 800 pts at the opening bell erasing most of its gains from yesterday. “Markets seem disappointed that the White House did not release details of its fiscal response to the coronavirus,” said Brian Gardner, a Washington policy analyst at KBW told CNBC.

The Bank of England unexpectedly cut interest rates by 50 basis points on Wednesday to 0.25%, saying that “although the magnitude of the economic shock from Covid-19 is highly uncertain, activity is likely to weaken materially in the United Kingdom over the coming months.” It was the first interest-rate reduction since August 2016.

The move by the BoE’s Monetary Policy Committee came a day before European Central Bank policy makers are set to meet and possibly cut rates. A surprise 50 basis point interest-rate cut by the Federal Reserve last week wasn’t enough to stem equities’ meltdown for very long. The CME FedWatch Tool shows 100% odds of another Fed cut at policy makers’ next scheduled meeting March 18. Both lower interest rates and declining equities are typically bullish for gold.

The precious metal started the week by climbing above the $1,700-an-ounce threshold for the first time in more than seven years Monday as investors searched for a safe haven against a 19% decline in the Dow Jones Industrial Average and Standard & Poor’s 500 Index between Feb. 19 and Monday as well as a 30% drop in oil prices on Monday.

Gold futures retreated Tuesday as equities erased some of those losses and oil prices partially rebounded. The April gold futures contract fell 0.9% Tuesday to settle at $1,660.30 an ounce on Comex. It dropped 0.7% in the first two days of the week. But “net inflows into gold-backed exchange-traded funds surpassed 55 tons, reaching a new record in the three days through Tuesday, Bloomberg reported. Currently, the April contract is at $1,662.50.

The broader market remained skittish as the coronavirus outbreak worsened around the world and Trump failed to deliver an economic stimulus package he’d promised to unveil Tuesday. U.S. equity futures retreated early Wednesday along with Treasury yields. Trump told Republican senators that he wants a payroll tax holiday through the November election as part of a package of economic measures designed to fight the coronavirus, Bloomberg reported, citing three unidentified people familiar with the president’s remarks.

The coronavirus, designated COVID19, has killed more than 4,200 people worldwide and sickened more than 118,000. Most of the cases have been in China, where the outbreak started, but more and more are being reported around the world. The virus is a WHO-designated global health emergency.

In upcoming economic news, the U.S. MBA Mortgage Applications Survey and the consumer price index are due out Wednesday, with jobless claims and the producer price index Thursday.

May silver futures slipped 0.6% Tuesday to settle at $16.96 an ounce on Comex. It fell 1.8% in the first two days of the week. Spot palladium, a metal used primarily in autocatalysts, decreased 3.2% Tuesday to $2,418.81 an ounce. The metal tumbled 6.4% in the first two days of the week. It rallied 14% in February. Spot platinum increased 1% Tuesday to $874.02 an ounce. It was down 3.5% for the week to date.

 

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