- Gold dumped more than 2.1% between Jan. and Feb. 4 as central-bank easing propped up the stock market.
- Relying on inflation to boost share prices will ultimately backfire against central banks, making gold more attractive.
- Bullion recovered on Wednesday, clocking in at a high of $ 1, . / oz.
The price of gold slumped into February after the People’s Bank of China (PBOC) injected emergency liquidity into the financial system to shore up stock prices amid the coronavirus scare . But as Peter Schiff warns, there’s only so much inflation central banks can pursue before it starts to backfire.
Money Printing Drives Stocks Higher
The onset of coronavirus triggered one of China’s worst stock-market meltdowns since the financial crisis . On Monday, mainland indexes were down as much as 9% in the first session back from the extended Lunar New Year holiday.
On the very same day, the People’s Bank of China injected 1.2 trillion yuan (US $ billion (into the financial system. The liquidity boost was meant to ease investors’ anxiety over the coronavirus outbreak, which has killed almost people and infected , 10 more .
The PBOC’s boost appears to have stabilized mainland markets and contributed to the sharp recovery in global stocks. Armed with fresh rounds of Federal Reserve liquidity and renewed easing from China, portfolio managers have been snatching up U.S. stocks over the past three days.
Since the Fed resumed quantitative easing in September, U.S. stocks have risen in virtual lockstep with the central bank’s balance sheet .
Gold Slide Unlikely to Last
The renewed appetite for risk has not only propped up stock prices, it has triggered a sharp correction in the price of gold.
Since rallying to three-month highs on Jan. , the gold price would go on to dump more than 2% over three trading days. The yellow metal corrected higher on Wednesday but still remains well off last week’s high.
Gold for April delivery climbed $