Gold price hits an all-time high in EUR. The increase in gold demand is causing a dizzying rise in prices. This morning the gold price per kilo in EUR currency registered a new absolute record reaching 52.502 €. The main reasons for this considerable sprint are fears about a second wave of the Coronavirus pandemic, the relative tensions created between the United States and China and the massive spurts of liquidity injected into global economies which have caused a huge increase in debt and a weakening of currencies.
Gold price hits record high in EUR: new fears for Coronavirus the main reason
Many European states are restarting their economies after the lockdown proclaimed last March to block the contagions from Covid-19.
Unfortunately on the other continents the situation is still very critical. In the United States, 1224 people died yesterday. In Latin America the situation is perhaps even more tragic. In Brazil, the Minister of Health, Nelson Teich, resigned after just 4 weeks from taking office due to the discrepancies with President Jair Bolsonaro on the management of the pandemic. Meanwhile, the country has become the fourth state in the world by number of infections and the forecasts for the coming months are truly abominable. Washington University predicts that the country could reach 88,000 deaths by August. Brazilian intensive care is at an extreme and the doctors have gone so far as to decide who to save. Meanwhile, in the past week in some areas of Asian countries, such as China and South Korea, the epidemiological curve has grown again. After these considerations, many investors – worried about the future of their savings stored in high volatility assets – are opting for safe haven assets, first of all gold. This is the main reason for the increase in demand which has seen the price of gold rising.
To throw further fuel on the fire there is also the tension between the United States and China which broke out precisely because of the pandemic. In fact, the United States of Donald Trump has blamed China for being responsible for all the deaths that the pandemic has caused and is causing, to the extent of naming the virus first “Chinese virus” and then “Chinese plague”. Trump also said it could cut the entire relationship with China.
Probably these attacks by Trump – which will surely foster national-popular sentiment even more – are part of a well-tried electoral strategy in view of the elections next November.
No replies were received from President Xi Jinping on the Chinese side. However, the Chinese press has taken the place of the President. It has come to define Trump as “lunatic with psychological problems created by the rise of Chinese power”. The tension is very high and this was also the reason why it was possible to see an increase in the price of gold.
A further reason why gold represents one of the most popular choices in the world is the use by central banks of fiscal stimuli to revive economies. As many will know, gold has the primary objective of protecting assets from harmful phenomena like inflation, which in turn is caused precisely by the aforementioned measures of the central banks (for example the injection of liquidity that increase the money supply in circle). Gold has an inverse correlation with the issue of these economic policy measures. Central banks have been forced to adopt these policies at this time to shake economies and inflation. The primary idea is to promote QE, that is, the purchase of government bonds by banks with the intention of introducing new money into circulation. Not only that, the ECB has recently claimed the goodness of negative interest rates. From Frankfurt they said that “although some banks are more exposed to the low rate environment, to date there is no evidence of an overall detrimental impact of negative rates on banks’ earnings and business models.” After this declaration, Deutsche Bank announced that will apply negative interest rates from today on new contracts for deposits over € 100.000. This decision is creating serious doubts in the minds of account holders about the use of their savings. More and more people will aim for gold.