Gold trading with an optimistic forecast: Portfolio manager
Permanent Portfolio Family of Funds’ President Michael Cuggino says gold will work for investors even if the economy encounters a downturn.
Gold prices rallied to a near seven-year high as the coronavirus outbreak and its potential economic consequences prompted speculation that central banks would lower interest rates later this year.
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The precious metal, typically viewed as a reliable value holder when rates are falling, closed up 0.5 percent at $1,607.50 an ounce Wednesday after a high of $1,614.40 earlier in the session. It has gained about 6 percent so far this year.
The narrative of the gold market is “largely focusing on the potential global economic fallout from coronavirus,” according to a recent note from J.P. Morgan’s Global Commodities Research team, led by Natasha Kaneva.
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The firm’s economists earlier this month slashed their first-quarter China growth forecast to a seasonally adjusted 1.3 percent quarter-over-quarter rate, warning a more severe scenario could lead to a 3.9 percent contraction. China’s economy grew 6 percent in 2019.
The price of gold is “rising because central banks are using the coronavirus as an excuse to create more inflation,” Peter Schiff, CEO of Westport, Connecticut-based Euro Pacific Capital, tweeted Tuesday. “Central banks will inflict far more economic damage in response to the coronavirus than will the virus itself.”
The People’s Bank of China has already cut both short- and medium-term interest rates and injected 1.2 trillion yuan ($236 billion) into money markets in an effort to cushion the blow from the coronavirus. The outbreak has led to the lockdown of more than 60 million people in the country and caused scores of businesses to temporarily shutter stores or reduce hours.
The slowdown in China is expected to provide a 0.4 percentage-point drag on U.S. economic growth, according to Goldman Sachs, which coupled with Boeing’s 737 Max production freeze could temporarily shave almost 1 percentage point from GDP.