The US Federal Reserve announced that it would purchase an unlimited amount of Treasuries and mortgage-backed securities to support the financial market which comes on the back of a decision by the US government to provide a 2 trillion dollar rescue package to help the American population and businesses who are struggling from the outbreak of the coronavirus.
This caused the gold price to rack up its biggest one day gain in nearly 11 years as all of these stimulus measures will mean a huge injection of US dollar’s to the market causing an oversupply and significant drop in demand for the world’s most popular currency.
This scenario sits well for gold which usually performs well in times of USD weakness.
The precious metal is also starting to show signs amongst investors as a safehaven asset against the coronavirus
“Everyone has wanted a shiny piece of gold over the last 24 hours, after the Fed took unprecedented measures to defend the U.S. economy from the coronavirus outbreak,” said Lukman Otunuga, senior research analyst at FXTM.
“The precious metal has appreciated since the start of the week and has the potential to extend gains on dollar weakness. A sense of unease over the coronavirus developments and fears around a global recession should support appetite for gold moving forward.” He added.
One of the world’s biggest wealth managers is also bullish on gold and advisors investors to take positions in the precious metal on what will inevitably be, a major selloff in the US dollar as the year unfolds once the stimulus package for the US government kicks in.
“When I think about what would I buy in the right here and now, I would be buying gold. ”said Wayne Gordon, executive director for commodities and foreign exchange at UBS Group
“You should see a weaker dollar over the next 12 months. On the back of that, you’ll see real rates go back into negative territory,” he said, adding: “That will be a potent power for gold.” He added.
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