Gold prices rose significantly to touch their highest levels since November 2012, taking advantage of the demand for a safe haven in light of expectations of a global economic recession and the potential for a decrease in the purchasing power of cash with central banks turning to massive economic stimulus. Nevertheless, major indices around the world also managed to rise taking advantage of the QE programs set by world governments indicating the possibility of economic recovery after the current recession. As for the US dollar, it is under immense bearish pressure after it was reported that the US budget may witness the largest record deficit of $3.8 trillion.
Moreover, the rise in gold demand pushed the precious metal to levels above $1730 an ounce in tangible gains. Although governments and central banks around the world poured in trillions of dollars, the global economy has already entered a recession, causing traders to go back to gold as a safe haven asset. In addition to the increase in demand, the downward pressure of the US dollar also played a role in increasing the price of gold.
As mentioned before, the US dollar is experiencing a significant decline effected by the policies of the US Federal Reserve and American government. Trillions of dollars have been pumped into the economy, but at the same time, traders have become more concerned about the possibility of a budget deficit to equal 18.7% of GDP. The rise in stock indices also pushed the dollar down as the dollar was exposed to a wave of selling in order for traders to target stock markets. Consequently, traders are already heading to high return markets but with caution and great anxiety, which also stimulates the demand for gold to cover the risks of these investments, while the US dollar is under significant pressure today.
The International Monetary Fund stated today that the global economy is very likely to witness the worst economic recession since the thirties of the last century due to the continued spread of the coronavirus. Also today, the Office of Budget Responsibility in the UK said that the country's economy may contract by 35% during the second quarter of this year and the budget deficit may reach £273 billion during the fiscal year 2020-2021. The Office confirmed that these expectations are based on the assumption that the measures of general isolation will continue for three months, followed by another three months during which restrictions will be partially lifted.
Nevertheless, the British pound managed to rise against the US dollar, taking advantage of the weakness of the dollar itself. The United States is undertaking massive stimulus plans in view of the possibility of a severe and deep economic recession in the US, and the more liquidity is pumped into the economy, the more pressure there is on the USD.
As for the euro, the single currency also witnessed a rise against the US dollar. Despite expectations of a deep recession in the euro zone economy, the euro benefited from the dollar's decline to achieve some gains today. And, according to Reuters, the US Department of Agriculture will spend up to $15.5 billion in the initial stage of a plan to support food supply chains in parts of the country suffering from the consequences of the coronavirus. This, in turn, is further indication of the continued pumping of dollar liquidity into markets which pushed the dollar lower against the euro, forcing the pair to rise ignoring news of a possible severe contraction in France.
The French Finance Minister said today that the economy is expected to shrink 8% this year instead of the 6% announced on Thursday, adjusting the numbers to take into account longer pauses in activities. France announced the extension of the state of closure until May to control the corona pandemic.
Likewise, in many countries around the world, an extension has been made of the isolation measures in order to try to limit the spread of the coronavirus which has infected nearly 2 million people since it was first identified.
The dollar also fell against the Japanese yen which used to supply trading in high-yielding assets, as global economic conditions are still unclear. The Japanese yen witnesses a demand from time to time at the expense of the dollar, which pushes the US dollar pair against the Japanese yen into a decline.
Looking at various economic sectors today, forecasts issued by the Air Transport Association indicate that airlines may lose about $314 billion due to the spread of the coronavirus. This suggests that the damage to many sectors in the world may be extensive which is causing widespread fluctuations in financial markets.