The past few days have yielded some extremely bullish gold price momentum. With the value per ounce now surpassing $2,025, the future looks bright. Several factors will continue to influence the market outlook for some time to come, as these repercussions should not be overlooked.
Low Interest Rates Aren’t Improving, but Gold is
The people who are still hopeful about interest rates will face a tough wake-up call. Current rates are already at an historic low, but they may never recover at this rate. More and more countries are calling for negative interest rates, which is rather worrisome. Romania, for example, is one of the countries looking into this option.
News provided by Bank of England isn’t all that promising either. It has been confirmed that the BoE will reduce interest rates to zero in November of 2020. It is not a shift in the red just yet, but that situation may be changing sooner than most would like to see. This will, in turn, positive affect the gold price in the coming months.
Even in the United States, there is still a very real chance for negative interest rates this year. Considering how US Treasury yields are decreasing further, the logical outcome would be to affect the interest rates accordingly. It is a problematic outlook, but it needs to be taken into account at all times.
Can US Treasury Yields Recover?
Based on the current developments, it seems unlikely that US Treasury yields will return to normal in the near future. Particularly the US 10-year yield has been taking significant hits lately, Just this week, it closed 51 basis points lower, with a further drop likely to occur in the weeks to come.
As a result, the real-year – the US 10Y minus inflation – is now in negative territory. Such a situation could not be avoided, despite best efforts. As the real-year goes into the red, it affects the interest rate differential between Europe and the US. This has, in turn, allowed for the gold price to move up again accordingly.
Money Printing Comes at a Cost
Overall, the stock markets have performed rather well in the past few days. A positive trend can be noted across the US and Europe, surprising a lot of people in the process. Sustaining that trend will prove difficult, primarily due to significant amounts of helicopter money entering various economies.
The impact of helicopter money is often underestimated. It offers a temporary relief, but causes massive issues further down the line. For now, the full impact of this money printing is not priced in yet. It may take a few more months until certain economies face the backlash of actions taken by their central banks.
Conclusion: Gold Will Keep Trending Higher
These actions will pave the way for a higher gold price. More and more investors, consumers, and speculators will flock to assets capable of retaining their value. With fiat currencies, that is impossible, even under normal circumstances. Safe haven assets, such as gold, silver, and Bitcoin, are all thriving due to these financial uncertainties. That uncertain outlook will remain in place for quite some time to come.