The Fed cuts rates, increasing gold’s allure

The US Federal Reserve (Fed) announced an emergency 50bp rate cut yesterday, bringing the Fed funds rate down to a 1-1.25% range, in response to ongoing concerns about the potential impact of the coronavirus outbreak to the global economy. Treasury bond rates followed suit, with the 10-year note hovering 1% at the time of writing – an all-time historical low

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Despite last week’s selloff, market shifts could bode well for gold prices

The stock market embraced the weakest one-week performance since the financial crisis last week on the back of growing concerns of the continued spread of the coronavirus across the globe. Despite the risk off-moves, gold was lower by more than 3% last week, which is historically unusual during these types of movements. There are a few potential reasons for the weakness.

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Currency crises, over-leverage and low rates – potential drivers of a gold bull market

The gold price has risen more than 15% this year against a backdrop of falling interest rates, economic uncertainty and geopolitical tensions. Dr Lu Zhengwei, Chief Economist of China Industrial Bank, Chief Economist of Huafu Securities and Vice Chairman of China Industrial Bank Research Limited, looks back in time to forecast the future for gold.

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Gold, inflation and pork in China

  • Inflation is on the rise in China, reaching 2.8% in August 2019, the highest in 18 months; leading economists expect it to rise further by the end of the year
  • African swine flu has wiped out a third of China’s pig livestock since last August, contributing substantially to the rising inflation
  • Looking back at history, when inflation rose above 3% the nominal return of the local gold price has averaged 17%

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