By Myra P. Saefong, MarketWatch
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.
“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.
“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.”