The Fed also plans to launch a quantitative easing program, boosting its bond holdings by at least US$700 billion.
The gold price fell to its lowest point in six months when markets opened on Monday (March 16), slipping to US$1,450.70 per ounce — a 5 percent drop from US$1,529 on Friday (March 13).
Widespread market volatility and concern that the global economy is descending into a recession prompted the US Federal Reserve to make its second emergency rate this month on Sunday (March 15).
Several other central banks followed suit, reducing their lending rates as well.
“The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States,” reads the statement released by the Fed. “Global financial conditions have also been significantly affected.”
In addition to making a cut of 100 basis points, bringing down the benchmark rate to almost zero, the Fed plans to launch a quantitative easing program, boosting its bond holdings by at least US$700 billion.
But the cash infusion by the Fed and other central banks around the world was not enough to bring investors back to safe haven assets.
“It’s the liquidity selling that continues to be the norm here,” Ryan McKay, a commodity strategist at TD Securities, told Reuters. “It is similar to what happened in the financial crisis where gold actually traded quite lower for a number of months along with equities.”
Broadly, the precious metals sector reacted poorly to the news, with gold falling below its 200 day moving average, which is considered a bearish sign.
The yellow metal was able to climb back from its early morning losses, reaching US$1,511.80 by midday; however, it had slipped back below US$1,500 as of 1:00 p.m. EDT.
Speaking with the Investing News Network at this year’s Prospectors & Developers Association of Canada convention, Frank Holmes of US Global Investors (NASDAQ:GROW) described the central banks as a cartel that is working to make regulatory decisions that impact the financial world.
“(Central banks) are all about synchronized taxation and regulation and using monetary policy to stimulate economic activity,” he said. “The US is the largest player in that space.” He believes negative interest rates in more countries will be bullish for gold.
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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.