Gold prices surge amid global fears

Gold prices surge amid global fears
Written by:
Damian Wood
29th January, 12:35
Updated: 19th May, 19:07
  • Gold this week traded 20% higher than last year, setting a 7-year high on Tuesday.
  • Gold-backed stocks have also been rallying, with Newmont (NEM) and VanEck Vectors Gold Miners ETF (GDX) making significant gains this year to date.
  • Experts believe last year’s Fed’s interest rates cuts contributed to gold’s aggressive prices, having lowered the value of the US dollar

Gold is among the few commodities whose prices were soaring as concerns over the Coronavirus Outbreak swept through the markets. As of this morning, the yellow metal was up about 20% higher than last year, as it trades close to $1,600 an ounce.

A couple of other precious metals have rallied too, including silver and platinum. Meanwhile, Dow Jones is up 0.66% or 187 points.

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Investors have been playing around with the idea of gold touching the $2,000-mark this year should the stocks keep sliding. The last time we saw the metal trading anywhere close to that figure was in 2011 when it hit about $1,900 an ounce during the European debt crisis.

But not every stock is taking a hit amidst panic over the new deadly virus. Most gold stocks have been doing pretty well, with Newmont (NEM), the world’s largest gold mining company ranking among the best in the S&P 500 at the start of this week. The VanEck Vectors Gold Miners ETF (GDX) rose nearly 40% this year to date.

CNN Business’s Fear and Greed Index plunged last week and is showing signs of further panic among investors. The index analyzes seven measures of the market sentiment, and it had been on a greedy mode just a week ago.

President and CEO of Blanchard & Company, David Beahm said: “There are a lot of things that could go wrong for the stock market and the economic impact of a China slowdown from the coronavirus could be felt globally.”

However, even before this crisis, gold had been doing well on its own. Any idea why?

Last year’s cuts by Fed Reserve in no small extent weakened the US dollar, making gold, which is considered a haven, more attractive than most fiat currencies including the US dollar and British pound.

And the benefit of a shrinking economy and lower interest rates didn’t just impact gold, other precious metals including palladium, silver, and platinum were also boosted, and have been rallying ever since. The rally makes perfect given a weakening dollar and low-interest rates.

Reports from the World Gold Council show that the US central bank bought 12% more gold during the first quarter of last year compared to the same period in 2018.

Experts blame “loose” monetary policy around stocks, as well as the Coronavirus fear factor, for the dwindling fortunes being experienced in most stock markets.

For now, investors will be having a keen on the yellow metal as the markets brace for tougher times ahead.

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