Gold price to breach record high of $1,920 if Fed turns negative on rates — Standard Chartered

Gold price to breach record high of $1,920 if Fed turns negative on rates — Standard Chartered by Anna Golubova for KitCo News

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If the Federal Reserve is forced to embrace negative interest rates, the gold price will react by breaching the previous all-time high of $1,920 an ounce, according to Standard Chartered.

Fed Chairman Jerome Powell has been adamant that negative interest rates are not the right tool to use in the U.S.

In his latest comments on Friday, Federal Reserve Chairman Jerome Powell reiterated his thoughts on negative interest rates, stating: “We don’t think it is an appropriate tool for the U.S.,” adding that the evidence of how negative rates work is mixed.

But markets remain unconvinced that negative rates will not be employed in the U.S. in the future.

“Markets saws the fed funds dipping briefly and very gently (1-2bps) into negative territory in mid-2021 before returning to positive territory (4-7bps) in mid-late 2022. We see this small move into negative rates as reflecting a strong market belief that the Fed will be on hold for an extended period. If the market is convinced that there is no room to raise rates, it will likely price in some probability of rates falling, however remote,” Standard Chartered explained.

The bank also highlighted that it does not see negative rates as its baseline outlook, but if the Fed is forced to go negative, it will have to go deep into the negative territory to make an impact.

“If the Fed takes the Fed funds rate negative, it will likely take it 50-100bps negative. In our view, this is a much bigger risk than the Fed dipping a policy rate toe into negative waters … A negative policy rate is not our baseline scenario and would occur on a disappointing rebound and exhaustion of other policy measures, but we see little point to a small move,” stated Standard Chartered.

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