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Feb. 22, 2020, 12:43 p.m. EST

Gold’s rise to near 7-year highs feeds talk of a climb to record prices of $2,000 and beyond

“The markets are in the throes of a weird mix of safe-haven and speculative motivations.”

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By Myra P. Saefong, MarketWatch

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Also see: Why silver prices may climb to their highest yearly average since 2014

The World Health Organization reported on Wednesday 75,203 confirmed cases of COVID-19, the new coronavirus that was first identified late last year in Wuhan, China. There have been at least 2,009 deaths from the virus, WHO said.

China has taken steps to boost its economy, and the People's Bank of China reduced its one-year lending rate on Monday.

Read: China may postpone annual congress because of virus

“Investors have revised down their expectations for interest rates in the US in a year’s time by 20 [basis points] since the virus outbreak on 20th January, presumably because they think that the [Federal Reserve] will respond in the same way as the PBOC,” said Simona Gambarini, markets economist at Capital Economics, in a note Wednesday. “That has prompted real bond (TIPS) yields in the US to fall well below zero. And since gold is a non-interest-bearing asset, it has benefited, as often happens, from lower real yields.”

However, Capital Economics believes the “rally in gold will end before long,” said Gambarini.

“We doubt that the outbreak will prompt the Fed to cut rates further,” she said. “The almost unchanged statement issued at the conclusion of the FOMC meeting on 29th January...suggests as much.”

Minutes from the January Federal Open Market Committee meeting released Wednesday after the gold futures settlement revealed that officials from the central bank believed the U.S. economy seemed stronger in late January than they had expected.

Read: Fed officials more upbeat about the economic outlook this year, minutes show

“Just last week, Fed policymakers said that, while they were paying attention to the economic risks of the outbreak, the virus has not altered their outlook for the US economy,” Gambarini said early Wednesday, ahead of the FOMC minutes. “In our view, the Fed would only loosen policy if there were evidence of significant economic costs at home, alongside a large and sustained drop in equity prices. So far there is little sign of either.”

Myra Saefong is a MarketWatch reporter based in San Francisco. Follow her on Twitter @MktwSaefong.

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Myra P. Saefong is on the markets team in San Francisco. She has covered the commodities sector for MarketWatch for more than 10 years. She has spent the...

Myra P. Saefong is on the markets team in San Francisco. She has covered the commodities sector for MarketWatch for more than 10 years. She has spent the bulk of her years at the company writing the daily Futures Movers and Metals Stocks columns and has been writing the weekly Commodities Corner column since 2005. Myra has been with MarketWatch since 1998 and holds a master’s degree in English literature.

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