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Paragon Commentary

Futures File: Interest Rates, Gold & Oil

Mar 06, 2020

Interest Rates Plummet as Virus Cases Rise

Interest rates collapsed this week as markets continued to absorb the impact of the spread of COVID-19.

On Tuesday, the U.S. Federal Reserve announced an emergency 0.5% rate cut in an attempt to get ahead of economic slowdowns caused by the virus. This was the first emergency action by the Fed since the 2008 financial crisis.

Alongside the drop in short-term rates, U.S. Treasury Bonds reached all-time low rates as investors scrambled to move their money out of the stock market. When there is high demand for bonds, buyers accept lower and lower interest rates, driving the rate for 30 Year Treasury Bonds to a record low of 1.22% on Friday morning.

As rates drop, borrowers benefit. For example, 30-year fixed rate mortgages hit an all-time low, approaching 3%, while rates for auto loans and credit cards are falling as well.

 

Gold Mounts a Comeback

Gold roared to life this week, gaining over $100 per ounce, taking the yellow metal back to seven-year highs on Friday.

Market watchers had been bewildered by an uncharacteristic selloff in gold last week that happened alongside the stock market selloff. Normally, gold finds eager buyers when stocks drop, and that tradition returned this week, taking April gold futures to $1690 per ounce on Friday morning.

Other precious metals like silver, platinum, and palladium gained ground, but prices are still suffering from fears of lower industrial demand. Copper, which is often seen as a bellwether of economic activity, is close to a three-year low near $2.56 per pound.

 

Oil Market Tanks

Crude oil slammed to a three-year low on Friday, dropping beneath $41 per barrel.

The market has now lost over a third of its value this year as concerns spread about the impact of the coronavirus on oil. Travel restrictions have reduced fuel needs, and fears of a global recession are weighing on future demand expectations.

On Friday, OPEC announced that they were keeping oil output levels steady after Russia refused to reduce drilling, despite widespread calls for production cuts. This could lead to a global oversupply and keep prices depressed for the foreseeable future.

For American drivers, the petroleum selloff could be a welcome relief at the pump; since early January, gasoline futures have fallen 40 cents per gallon, and diesel fuel has lost over 70 cents.

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