March 24, 2020

Morale Lifted & Gold On Fire

Morale Lifted & Gold On Fire

European futures are trading higher as investors have paid attention to some positive news in relation to the Coronavirus outbreak. It appears that the pace of the virus outbreak in Milan is slowing down, and this means that it is likely that Italy may have seen the peak, or is at least nearing its peak.

But more encouraging news comes from China where over 100,000 people have recovered from Coronavirus, and China is likely to lift the lockdown in Wuhan. The city was subjected to a massive quarantine since the outbreak of Coronavirus.

Investors are also optimistic about the recent containment efforts.  The UK introduced strict lockdown measures last night and states from Washington to Massachusetts have also asked the public to stay at home. President Trump remains confident that the recovery is going to be strong in the US and that the Fed has done a phenomenal job so far. Yesterday’s move by the Fed boosted the morale in the markets.

The Fed opened the liquidity taps fully and unleashed the unheard measures to shore up the reeling economy. Their announcement caused investors jaws to drop. One can say that the Fed is in uncharted territory now. In another surprise announcement, the Fed announced the unlimited purchase of Treasury bonds and mortgage-backed securities. The Fed is determined to help the economy and they included products in their shopping list which many weren’t thinking of. The measure included the corporate bond market, purchase of commercial asset-backed mortgages and exchange-traded funds. This is a massive liquidity program and it is targeted to kick start the economy from its doom days.  

The so-called unlimited QE created a massive buzz in the markets yesterday, but it failed to lift spirits fully because the optimism started to fizzle out. Investors still need to see that $2 trillion worth of fiscal package from Congress. So far, the blame game continues between Democrats and Republicans, and the fact is, that if these politicians do not get their act together, all of the hard work done by the Fed will not only be futile, but in fact, the current dire situation of the US economy will be out of control. The bottom line is that if we do not get the fiscal bazooka this week, it would be immensely arduous to put a leash on this beast.

Oil

Back in the energy market, crude oil is green, and it is up more than four percent. Investors are hopeful that the QE package introduced by the Fed will help the economy. The reason that crude prices are still trading below the critical level of $30 is that there are no signs of any curtail in the oil supply. It will be not long before those extra barrels of oil will hit the market and this will make the situation profoundly worse.

Gold

If there is any derivative that is on fire, it is your precious metal. Traders have finally woken up  and understood the meaning of the Fed commitment, and what it means for the gold price. The precious metal is likely to cross the level of 1600 in the coming days; the momentum is strong and positive. Unlimited QE means an unlimited surge in the gold price and traders should consider any pullback as a gift from God.

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