The gold price is expected to benefit on the back of lower interest rates after the Bank of Canada cuts i rates by 50 basis points, following in the footsteps of the US Federal Reserve who made the same move just a few day’s earlier
Lower rates in the respective currencies gives little reason to investors to hold currencies to obtain decent yields which ultimately means a selloff and at the same time, stronger demand for gold.
In the following monetary statement, the Canadian central bank noted that fears over the coronavirus had forced them to cut rates more than expected which echoes fears from the Policy makers in the US and Australian also cited as the reason for pushing rates lowe,
Global central banks appear to be falling in line with the Federal Reserve as the Bank of Canada cuts interest rates by 50 basis points.
Wednesday, following its monetary policy meeting, the Bank of Canada dropped its overnight rate to 1.25%
“While Canada’s economy has been operating close to potential with inflation on target, the COVID-19 virus is a material negative shock to the Canadian and global outlooks, and monetary and fiscal authorities are responding,” the bank said in its monetary policy statement following the interest rate decision.
“Before the outbreak, the global economy was showing signs of stabilizing, as the Bank had projected in its January Monetary Policy Report (MPR). However, COVID-19 represents a significant health threat to people in a growing number of countries. In consequence, business activity in some regions has fallen sharply and supply chains have been disrupted. This has pulled down commodity prices and the Canadian dollar has depreciated,” they added.
Some say the interest rate cuts will keep coming from around the globe and may even fall into negative territory which is going to make gold more appealing which should entice investors to make the precious metal part of their portfolio
“We have a lot people focusing on U.S. equities right now, also gold is digesting some of the move that it had after the Fed rate cut,” said Michael Matousek, head trader at U.S. Global Investors.
“We have negative interest rates around the globe and probably we can see more negative interest rates in the future ... there is uncertainty from the virus lurking around, so investors have reasons to why gold should be in their portfolio,” Matousek added.