Gold forges higher with Fed's cut stoking demand for havens

[SINGAPORE] Gold just got a powerful boost from the Federal Reserve, with bullion extending gains in Asia following the US central bank's emergency, virus-driven rate cut, losses in equity markets and collapse in Treasury yields.

Bullion prospers from low rates, and more easing is expected from the Fed and other central banks as policymakers seek to blunt the economic fallout from the health crisis. Vice-President Mike Pence, who's leading the US government response, said that 13 states now have coronavirus cases.

Gold has surged more than 8 per cent so far this year on sustained haven demand, with prices hitting a seven-year high as holdings in bullion-backed exchange-traded funds expanded to a record. Fed policymakers shaved 50 basis points off their benchmark, cutting rates outside the normal cycle of meetings for the first time since 2008. The Fed's easing, including debt purchases, contributed to a decade-long rally in bullion that sent prices to a record in 2011.

"Central bank actions are aiding gold appreciation," said Chris Weston, head of research at Pepperstone Group in Melbourne, Australia. "The Fed are worried, and so the equity market feeds off Powell's sentiment, which is supporting gold," he said, referring to Fed chairman Jerome Powell.

Gold jumped as much as 0.7 per cent to US$1,652.67 an ounce, and traded at US$1,646.69 at 8.15am in Singapore following Tuesday's 3.2 per cent surge. The Fed's latest move is helping to reinvigorate demand after bullion plunged on Friday, with investors selling the metal to cover losses in other asset classes.

The S&P 500 Index ended almost 3 per cent lower following the Fed's cut and comments from Mr Powell that the outbreak will weigh on activity "for some time". The 10-year Treasury yield plunged below 1 per cent and the US dollar fell.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

BLOOMBERG