Gold price up as Fed begins historic ETF purchase program

Image courtesy of the Federal Reserve Bank of Atlanta.

Gold price moved higher on Tuesday on expectations of more stimulus and talks of further interest rate cuts from the US Federal Reserve to reinvigorate the economy as it slowly emerges from the coronavirus induced lockdowns.

Spot gold returned to levels seen at the end of last week, rising 0.3% at noon ET to $1,701.87 per ounce. Gold futures for June delivery also recovered, up 0.7% to $1,709.60 an ounce.

The initiative will target ETFs that hold so-called “fallen angel bonds” of companies that have been downgraded from “investment grade” to “speculative” or “junk”

The US central bank began purchasing ETFs holding corporate bonds for the first time ever Tuesday as part of its pandemic rescue package. The initiative will target ETFs that hold so-called “fallen angel bonds” of companies that have been downgraded from “investment grade” to “speculative” or “junk”, particularly in cases where the downgrades happened due to the coronavirus crisis.

Such injections into the economy have generally lifted investor demand for safe-haven assets like the precious metal as fears of inflation and currency debasement grow.

“This is big…here’s more stimulus coming to the table and everybody knows when there’s more stimulus, you want to own more gold,” says Michael Matousek, head trader at US Global Investors, in an interview with CNBC.

“Gold over past month and a half has traded in a range. One of the positive things that can boost gold to breakout would be more talk about more stimulus across the globe,” adds Matousek.

“The spot price of gold is consolidating just above the threshold of $1,700 in a scenario where investors remain bullish on gold but require fresh stimuli to generate another rally,” says ActivTrades chief analyst Carlo Alberto De Casa.

Also on Tuesday, President Donald Trump once again openly pushed the Fed to adopt negative interest rates, though several members of the central bank have said they do not see a need for rates, which are already near zero, to move into negative territory.

Gold has benefitted from the widespread stimulus measures unleashed around the world to limit the economic impact of covid-19. So far this year, price of the metal has risen by over 12%.

Earlier this week, analysts at JPMorgan suggested that investors should continue buying gold owing to the economic crisis created by the pandemic.

52610 0

Comments

Your email address will not be published. Required fields are marked *

More USA News