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Gold price pushes back above $1,500 as Fed reinstates its Commercial Paper Funding Facility

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Editor's Note: The article was updated to reflect a sharp rally in gold and to include comments from the Federal Reserve

(Kitco News) - Gold prices have surged higher pushing well above $1,500 an ounce as the Federal Reserve announced new measures to pump more liquidity into the economy.

Tuesday, Federal Reserve announced that it will reinstate its Commercial Paper Funding Facility, which was first introduced during the 2008 financial crisis.

The move will allow the Fed to circumvent banks and get liquidity straight to ailing businesses. With the new measures, the U.S. central bank can buy commercial paper from issuers directly.

"“By eliminating much of the risk that eligible issuers will not be able to repay investors by rolling over their maturing commercial paper obligations, this facility should encourage investors to once again engage in term lending in the commercial paper market,” the Fed said in a statement.“An improved commercial paper market will enhance the ability of businesses to maintain employment and investment as the nation deals with the coronavirus outbreak."

Gold prices started to rally as markets anticipated the new Fed action. Gold prices have pushed even higher as the U.S. central bank confirmed the rumors with its annoucement. April gold futures last traded at $1,543.80 an ounce, up 3.85% on the day.

The Federal Reserve continues to take unprecedented steps to shore up the U.S. economy so it can weather the current financial turmoil caused by the spreading coronavirus.

The Federal Reserve's expected move comes only two days after, in an emergency move, it slashed interest rates to a target between 0% and 0.25%. It also announced $700 billion in new quantitative easing measures.

Market analysts have noted that the economic crisis caused by the coronavirus is prompting the Fed to take a more aggressive stance than it did during the 2008 financial crisis.

Although gold prices have struggled along with equity markets. Many analysts have said that when sentiment finally bottoms, gold will be the asset to own as deficits and balance sheets grow out of control.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.