Gold for April settlement peaked north of $ 1, 619 / oz. Thursday. The yellow metal is up 4.3% year-to-date. | Chart: barchart.com
Bullion is outperforming the US stock market this month. There are at least three reasons why the precious metal is likely to extend its rally for the remainder of the quarter.
The Spread of Coronavirus
The renewed urgency to buy gold follows a worsening coronavirus outbreak that has infected thousands of people across at least 29 countries. After initial hesitation, the World Health Organization (WHO) has officially announced the coronavirus outbreak to be a global public health emergency .
Infections in China alone have topped 8, 600, already surpassing the worldwide cases of SARS back in .
In addition to the human toll, the spread of coronavirus has major implications on the health of nations and regions . Even the Federal Reserve’s Chairman Jerome Powell commented Wednesday that coronavirus is likely to cause “some disruption of activity in China and probably globally.”
The flight to safety has been accompanied by sharp declines in global equity markets. Following a brief pause, stock prices are plunging again over fears of global pandemic. In an environment dominated by risk-off sentiment, gold and other safe havens are likely to rise in value.
Technical Breakouts Eyed
Gold’s rapid ascent is also being aided by technical traders who see renewed opportunity in longing the precious metal. As AG Thorson of FXEmpire noted Thursday, gold still has a ways to go before the current six-month cycle peaks .
The analyst believes prices are only now breaking out from a mid-cycle consolidation, which puts $ 1, on the immediate horizon. Bullion has already pushed north of the – period moving average , giving it a bullish bias over the short term. A takeout of $ 1, 814 leaves the seven-year peak of $ 1, 728 exposed.
ETF Inflows Surge
Demand for bullion is also being reflected in the multi-trillion-dollar ETF market. 2020 marked the fourth consecutive year of net inflows into gold-backed ETFs. As Bloomberg reports , the amount of money held in these funds now sits at seven-year highs.
Bloomberg analyst Ranjeetha Pakiam said it’s not just coronavirus driving the gains. The Federal Reserve’s decision to lower interest rates and keep them anchored well below the historic average has also boosted the appeal of the precious metal. As a non-yielding asset, gold is an attractive investment when interest rates are low.
Although the Fed has signaled that rates are likely to remain stable for the balance of , there reason to believe its next move will be to lower them . Already today, futures traders are pricing in at least one rate cut after September, according to CME Group’s FedWatch tool.
Despite what the Fed says, futures traders are pricing in more rate cuts by the end of the year. | Chart: CME Group Beyond the Fed, central Banks around the world are lowering interest rates and introducing new easing measures to revive economic growth and inflation. Central banks cut interest rates a total of (times in) . Further easing is likely on the way as China and emerging markets continue to slow.
Disclaimer: The above should not be considered trading advice from CCN.com.
This article was edited by Josiah Wilmoth .