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Central banks slashes rates, why is gold’s price below $1,500? | The Mesh Report

Central banks slashes rates, why is gold’s price below $1,500?

Mike Hammer March 16, 2020 Comments Off on Central banks slashes rates, why is gold’s price below $1,500?

Central banks around the world have been very busy announcing measures to soften the impact of COVID-19 on their economies. But global stocks continued to sell off, dragging precious metals down along with them.

Here’s some of the most recent policy actions by central banks around the world:

Federal Reserve

The Fed once again tried to positively surprise the markets when it announced its second emergency cut in two weeks on Sunday afternoon. The central bank cut rates by 100 basis points, bringing down the benchmark rate to near zero. Also, the Fed said it will be launching a quantitative-easing program, boosting its bond holdings by at least $700 billion.

Other measures introduced by the Fed included reducing reserve requirement ratios to zero percent, allowing banks to borrow from the discount window for 90 days, and cooperating with other central banks to make sure U.S. dollars are readily available with swap lines.

Bank of Japan

Japan’s central bank held its key interest rate steady on Monday but doubled its net purchases of exchange-traded funds to 12 trillion yen. The central bank also announced a lending program to help struggling businesses during the COVID-19 outbreak.

The announcement was also a surprise as it was originally scheduled for Thursday.

People’s Bank of China

China’s central bank pumped more cash into the financial system on Monday, injecting 100 billion yuan via the one-year medium-term lending facility. The central bank kept rates unchanged at 3.15%.

Reserve Bank of New Zealand

New Zealand backed an emergency rate cut Monday, slashing its interest rate by 75 basis points, down to 0.25%. It also assured the market that it will be keeping rates this low for at least one year.

Bank of Korea

South Korea proceeded with a 50-basis-point cut Monday, lowering its rate down to 0.75%.

Reserve Bank of Australia

Australia said it will continue to support the economy with longer repurchase operations as it injected a record A$8.8 billion ($5.4 billion) of liquidity into the market on Friday.

Bank of Canada

Canada slashed rates by 50 basis points in an emergency cut on Friday, bringing its key interest rate down to 0.75%. This is a second emergency cut for the BoC in just two weeks.

Bank of Sri Lanka

Sri Lanka cut its rate by 25 basis points, lowering it to 7.25% on Monday.

Turkey

Turkey’s central bank responded by announcing a cut to its remuneration rates required on reserves in liras starting March 20, bringing it down from 10% to 8%.

Bank of England

The U.K. lowered rates by 50 basis points last week. And the new Bank of England Governor Andrew Bailey assured the country that he will be delivering “prompt action again.”

Bank of Israel

Israel will be purchasing government bonds purchases for the first time since 2009.

On top of that, India said it could cut rates in April, while Kuwait cut rates by 100 basis points on Monday and the United Arab Emirates lowered its rate down by 75 basis points.

Precious metals plunge

Low interest rates are usually great for precious metals. But the slate of rate cuts and liquidity injections have not reassured the markets, with Goldman Sachs warning its clients that the S&P 500 might not bottom until it hits 2,000.

“The coronavirus has created unprecedented financial and societal disruption,” Goldman’s U.S. chief equity strategist, David Kostin, wrote in a note. “The combination of thin liquidity, high uncertainty, and positioning could cause the S&P 500 to fall below our 2,450 base case estimate of fair value and closer to a trough of 2,000.”

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