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Tuesday, Dec 07, 2021
Outlook.com
Opinion

Opinion | All That Glitters Is Not Gold. Why Fiscal Stimulus Have Limitations

Safe assets like gold, Japanese Yen and US treasuries have rallied sharply during this time of distress but unlike treasuries, gold hasn’t been able to hold its gains, writes financial analyst Praveen Singh

Opinion | All That Glitters Is Not Gold. Why Fiscal Stimulus Have Limitations
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Opinion | All That Glitters Is Not Gold. Why Fiscal Stimulus Have Limitations
outlookindia.com
2020-03-28T09:31:37+05:30

Besides its tragic health consequences, COVID-19’s impact on the global economy will be far-reaching. Monetary and fiscal stimulus have their own limitations in fixing a worldwide medical problem. Despite the major central bankers adopting loose monetary policies, the IMF and World Bank offering monetary help to affected countries and talk of coordination between major economies, we are seeing that risk assets are simply unable to find the bottom.

Safe haven assets like gold, Japanese Yen and the US treasuries have rallied sharply during this time of distress. However, unlike treasuries, gold hasn’t been able to hold its gains. Currently, it is trading at a price of $1,490/Oz, lower than what it was before the surfacing of coronavirus. It surged past $1,700/Oz mark on March 9, before correcting sharply lower. The US treasuries have done the best. Gold, in a way, is suffering on two counts: Firstly, in this panic sell-off, some investors are dumping anything and everything. Secondly, some investors are selling gold to remain liquid and cover losses elsewhere. Also, many investors keep gold in their portfolio only up to a certain proportion, so their portfolio’s shrinking value due to falling markets is forcing them to sell some of their gold holdings too. Yet, considering the sharp decline in global yields, hefty cuts in interest rates and unprecedented stimulus from governments, we are positive on gold prices and look for steady gains of 10-15 per cent in the near to medium term.

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