Gold prices were rising on Friday as investors bet more central banks may adopt zero interest rates. The gold price rise was also credited to increasing uncertainty for the world economy.
Gold added 0.7% to 1,234.20 an ounce in electronic trading at 7:23 a.m. in New York.
On Thursday, gold prices for April delivery on the New York Mercantile Exchange’s Comex division closed up 1.2% at $1,226.30 an ounce.
Wall Street is set to open lower on Friday. Dow e-minis were down 0.3%, with 31,000 contracts changing hands. S&P 500 e-minis were down 0.3%, with 225,000 contracts traded. NASDAQ 100 e-minis were also down 0.3%, on volume of 26,000 contracts. Wall Street halted a three-day rally on Thursday.
Crude prices fell about two percent on Friday, with the U.S. oil benchmark hovering at $30.00 a barrel after a record increase in U.S. stockpiles.
Gold and stocks switched directions this week following the release of minutes from the Federal Reserve’s most recent meeting. The minutes indicated that the Fed is concerned about the slowdown in the global economy.
That raised speculation that the U.S. central bank may impose negative interest rates–charging commercial banks for the privilege of holding reserves with the central bank–in response to softer current economic activity indicators.
Markets now attach a 10% chance (four times higher than the start of this year) that the Federal Reserve will impose negative interest rates over the next 12 months. (Source: “The consequences of negative interest rates,” CNBC, February 16, 2016.)
Countries representing almost a quarter of global gross domestic product (GDP) now have sub-zero interest rates–including the eurozone, Switzerland, Denmark, Sweden, and Japan.
Almost a third of all the sovereign debt held by developed economies is negative yielding. That’s more than $7.0 trillion worth of assets guaranteed to lose money if held to maturity, CBC reported, citing Bloomberg. (Source: “Gold price over $1,200 has bullion buyers sure rally will continue,” CBC, February 19, 2016.)
Gold stands to benefit in a low interest rate environment because it carries no yield.
Gold prices have rallied since they touched a 52-week low of $1,047 late last year. They are up 16% this year.
On the other hand, equities worldwide lost as much as $8.6 trillion in value this year, according to Bloomberg.
The S&P, Dow, and NASDAQ have retreated 6.2%, 5.8%, and 10.4%, respectively, since the beginning of the year.