Gold Price Outlook:
- Gold prices[1] may climb following an emergency rate cut from the Federal Reserve
- Apart from the initial shock, some investors suspect another 50bps cut at the March 18 Fed meeting
- Thus, gold may enjoy the benefit of lower rates and lingering risk aversion simultaneously
Gold Price Forecast: Lower Rates, Lingering Risk Aversion to Boost XAU
Gold prices may climb higher in the weeks ahead following an emergency rate cut from the Federal Reserve.[2]While the decision was a shock to most, some markets have already begun to price in another 50bps reduction to the Federal Funds Rate at the March 18 Fed meeting. The prospect of lower rates should fuel XAU/USD[3] price gains in the weeks ahead as traders seek protection from inflation.
Trading the Gold-Silver Ratio: Strategies & Tips[4]
That being said, the economic impact of coronavirus will likely be deflationary in nature – a theme I discussed[5] in my silver price[6] outlook. Still, once the storm has been weathered, the US economy will be left with substantially lower rates and, assuming the economy has not slipped into recession, an appetite to recoup losses. Thus, an eventual recovery could create prime conditions for rising inflation and drive gold demand.
Further still, it is difficult to ascertain just how much of the Fed’s easing has already been priced in to the precious metal. The US Dollar[7] (via DXY) has declined for days and US Treasury yields have dropped to record lows[8] while gold has remained beneath its recent swing high in February. Therefore, it looks as though gold will enjoy a series of fundamental tailwinds in the weeks ahead, particularly if risk aversion
