Shares around the world have slumped on warnings from the Federal Reserve that the road to recovery is going to be long and bumpy, highlighting once again the appeal of gold as a long term safe haven.
STOXX 600, which is a pan-European stock index fell by 1% on the warning with banks, energy and automotive stocks especially hard hit. The FTSE 100 was down 1.6% at the close of trading, while the Asia-Pacific MSCI declined 1.5%. Frankfurt and Paris indexes were also lower.
The minutes from the July meeting of the Federal Reserve which provoked the slide sounded strong warning bells and painted a grim picture for the economy moving forwards. The summary of the meeting said that officials had, “agreed that the ongoing public health crisis would weigh heavily on economic activity, employment, and inflation in the near term and was posing considerable risks to the economic outlook over the medium term.” The notes also seemed to suggest that the Fed is worried the continuing crisis could pose a risk to the financial system.
This official statement is good news for gold, given how well it has performed in market conditions this year. According to the Financial Times, there are other factors at play too – all of which support gold. It says that US stocks are 22 times the price of expected earnings, a scenario not seen since the dotcom bust of the 2000’s. It also cites an increase in US-China tensions (which last year provided the momentum for a strong bull run), the November US presidential elections and the emergence of what many are calling a second wave in Europe as areas of concern for the economy.
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