Business

This is the message behind the stunning rally in gold prices – world economy is in trouble


All these things, when taken together, have even triggered concern in some financial circles that stagflation — a rare combination of sluggish growth and rising inflation that erodes the value of fixed-income investments — could take hold across parts of the developed world.


The main driver behind gold’s latest rally “has been real rates that continue to plummet and don’t show signs of easing anytime soon,” Edward Moya, a senior market analyst at Oanda Corp., said by phone.


“The global pandemic is providing a sustained boost to gold,” Francisco Blanch, BofA’s head of commodities and derivatives research, said Friday, citing impacts including falling real rates, growing inequality and declining productivity.


Prices quickly recovered after a surprise cut to the Fed’s benchmark rate and signs that the economic toll of the coronavirus would lead to massive stimulus efforts from global governments and central banks.


From December 2008 to June 2011, the Fed bought $2.3 trillion of debt and held borrowing costs near zero percent in a bid to shore up growth, helping send bullion to a record $1,921.17 in September 2011.


The crisis a decade ago was all about banks, said Afshin Nabavi, head of trading at Swiss refiner and dealer MKS PAMP Group, who nows sees gold “pointing towards $2,000.”






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