Gold’s jagged recent performance continued today, as the metal gained 5.27% in early trading but remained below its level of a month ago.
It changed hands at $1,605.75 an ounce, lower than the $1,634.90 at which it traded a month ago, on 26 February, but considerably higher than the $1,511.50 that it was worth three months ago, on 27 December.
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And it is nearly $300 above the $1,316.30 seen 12 months ago, on 26 March 2019.
Flight from equities
Traditionally, gold is seen as a competitor to the US dollar as a so-called “safe haven” asset, but on this occasion the American currency has been holding reasonably steady. This morning, it traded down 0.58% against the euro at €0.9139, little changed on its level a month ago, a €0.9191 on 26 February.
Three months ago, the dollar was worth €0.9012 on 26 December, and 12 months ago, on 26 March 2019, it traded at €0.8872.
But on this occasion, it seems gold is serving not so much as an alternative to the dollar as to the stock market. The devastation wrought by the coronavirus has sent key benchmarks tumbling.
On Wall Street, the Dow Jones index traded at 25,657.73 a year ago, on 25 March 2019, and was worth 21,200.55 on 25 March this year. London’s FTSE 100 index stood at 7,196.29 on 26 March 2019 and 5,595.21 this morning.
It seems both the US currency and bullion are benefiting from the flight from equities, a process in which both assets will rise and fall against each other as investors and traders weight the relative attraction of each. Gold, being priced in dollars, has a close relationship not only with the currency itself but with the whole gamut of US monetary policy.
“Coronavirus has harmed communities”
The decision earlier this month by the American central bank, the Federal Reserve, to slash its key Federal Funds Rate to an unprecedented low range of 0%-0.25% would normally have given a larger lift to the gold price than has actually happened. The dollar’s great advantage over gold in normal times is that it provides a return, unlike bullion.
But with rates this low, that advantage is greatly reduced.
However, that the dollar is holding up quite well suggests that, as has been seen with some governments’ bonds that pay zero or even negative rates, investors seem to seek simply a home for their money, regardless of returns.
Announcing its decision, the Fed said: “The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States.”
It added: “The effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook…. The committee [the Federal Open Market Committee, which sets rates] expects to maintain this target range until it is confident that the economy has weathered recent events.”