Why Are Gold Prices Struggling While Equities And Bond Yields Are Tumbling?

The emphasis here is “will raise interest rates”. The theory is that if governments around the world start implementing easing measures through fiscal policy, they will be forced to issue more bonds. This stands to drive down bond prices which in turn increases bond yields.

Back to the earlier point about gold prices breaking out at the same time the Fed made it clear it was going to shift from a hiking cycle to an easing cycle. A rise in bond yields can arguably remove the catalyst that has been driving precious metals higher since the summer.

Fiscal Stimulus is the Next Logical Step to Combat the Virus

With several central banks already facing a hurdle with interest rates at historic lows, there appears to be a high probability that governments will utilize fiscal stimulus to soften the economic blow expected as a result of the Coronavirus.

US President Trump is already in the process of trying to implement a payroll tax cut and provide relief for hourly wage workers. Granted, he is facing some hurdles, but it’s on the radar.

The Bank of England delivered an emergency 50 basis point rate cut yesterday. What’s most interesting is the timing of it all. The markets reasonably expected action after the G7 meeting last week and were disappointed when the BoE didn’t push forward with a rate cut.

Instead, the MPC decided to wait until yesterday, the same day the UK released its budget which revealed 30 billion pounds worth of fiscal stimulus to aid in offsetting the negative impact the virus is expected to have.

The ECB meets later today and President Lagarde has shown a similar line of thinking. Lagarde knows cutting rates won’t do much as they are already in negative territory.

Several analysts expect more QE and it would be surprising if the ECB didn’t deliver on this front. The real question is, will Europe follow the UK, and what the US is trying to do, and implement fiscal stimulus.

The Financial Times reported yesterday that Lagarde has been asking European governments to do exactly that.

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Gary Anderson 3 months ago Contributor's comment

Gold seems to act as a hedge against inflation, but not against deflationary pressures.

Backyard Hiker 3 months ago Member's comment

I would think that in days of #COVID19, people would be flocking to #gold.

Gary Anderson 3 months ago Contributor's comment

Maybe they will but we could be in a deflationary period which makes the dollar soar.