Yesterday, the bullion recorded its biggest daily gain since 2016. The precious metal was boosted by the decision of the U.S. Federal Reserve to reduce the benchmark interest rate by 50 basis points to protect the economy against the negative impact of the coronavirus outbreak. This is the Fed’s first emergency rate cut since the financial crisis of 2008.
The markets initially reacted with a shift to risk aversion, with the S&P 500 retreating to erase most of the weeks gain. Risk appetite has picked up since, and SPY is once again nearing weekly highs.
According to Margaret Yang Yan, an analyst with CMC Markets, the effect of the interest rate reduction on gold is likely to be minimal since it is already considered in current pricing. She also said that if the rate cut was higher, it would suggest a financial crisis. Yan expects the Feds to provide status in its scheduled meeting in March.
The emergency rate cut had a short negative impact on the US stock markets but Asian stocks remained weak in early day trading while European shares generally fared better. The dollar index is seen recovering after positing four consecutive daily declines.
In other precious metals markets, silver prices eased back to trade about half a percent lower shortly after the opening bell. Platinum prices are also under pressure, and have given up about half of yesterday’s gain.
The U.S. 10-year Treasury yields remain close to record lows registered during the previous trading session.
In a related development, the Hong Kong Monetary Authority has followed the footsteps of the Feds and implemented a 50-basis point reduction charged through over discount window. The finance officials of the Group of Seven countries also announced yesterday that they intend to use all necessary policy tools to cushion the economy against the economic threats posed by the rapidly spreading coronavirus. The bank of Canada was the latest to deliver monetary policy easing, following the Federal Reserve with a 50 basis point cut. The BoC was one of the few central banks that did not cut rates over the last year ahead of today’s decision. The loonie was little changed on the day versus the greenback shortly after the decision. Gold prices held about 2% below all time highs versus the Canadian dollar.