Gold prices rebounded last week after an end-of-the-month sell-off the previous Friday (2/28). The sell-off may have been related to margin calls for investors dealing with the previous week’s precipitous decline in the equity markets.
Gold prices hit $1,692.80 per ounce last week, moving just past the previous high reached during the coronavirus scare. Prices closed the week at $1,672.40 per ounce (see the following chart).
A major catalyst for the rebound was the unexpected 50-basis-point rate cut by the Federal Reserve on Tuesday (3/3). Both the timing and size of the cut sent the equity markets down and gold prices up. This dramatic cut signified the government’s serious concern about the global economic effect of the coronavirus contagion.
Many analysts now see the Fed cutting rates down to zero. “I would not be surprised if within the next few months the Fed went back down to zero,” said David Kelly, chief global strategist at JPMorgan Funds. CNN adds, “The bank’s US economics research team told clients Tuesday they now see a 50% chance of a return to zero this year.”
With this emergency cut and talk of additional cuts and even stimulus packages in the works, the U.S. dollar plunged to an eight-month low last week. As we pointed out last week, a sustained decline in the U.S. dollar is strong support for gold prices.
Rick Andrews is president of Avant Capital Management.