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London — Should the US Federal Reserve reduce base interest rates to negative territory, gold would likely be catapulted to fresh all-time highs, Standard Chartered said Friday.

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The bank's precious metals analyst Suki Cooper said the assumption was not its base case, but did not rule out the possibility. This is the same as the Fed, which has not ruled out stripping back its core interest rate to below zero. This would mean banks could theoretically pay back less than they borrowed.

One thing that Standard Chartered did factor in was that should the Fed move rates below zero, it will likely be 50-100 basis points negative, rather than just "dipping its toe." The net result would be the US dollar stalling, a potential boon for gold.

"Gold prices would likely test levels beyond the previous intraday high of $1,920/oz [back in 2011], as negative interest rates would lower the opportunity cost of holding gold. Investors still appear to be underallocated to gold, and negative rates could draw interest from retail to the official sector," Cooper said.

The London PM Gold fix was $1,728.70/oz Friday, up $11.35/oz on the day.

"The medium to longer term [macroeconomic] outlook makes diversification into gold more appealing to a broader base of investors: interest rates are likely to remain extremely low for an extended period of time as central banks seek to support lending to businesses and consumers; inflation may be allowed to creep higher in order to reduce excess government debt; and slower growth punctuated by possible future lockdowns brings downside risk to pro-cyclical assets. Investment into physically-backed gold ETFs has increased by 20% so far this year to reach record highs of almost 100 million oz and looks set to continue to grow," said Mitsubishi precious metals strategist Jon Butler.

Since the coronavirus pandemic struck, gold has been in focus. It initially got sold off in a dash for cash, and then steadily rebounded to test eight-year highs. Then, as stock markets have risen, buoyed by unprecedented fiscal stimulus from the US, gold has managed to hold on to that strength, while seeing occasional pockets of profit-taking, but with dips largely being bought.

"Gold continues to hold firmly in the range as calls for continued stimulus, recovering inflation expectations and real rates still firmly negative offer investors reasons to hold onto their investment, even as equities continue their surge," said Bart Melek, head of commodity strategy at TD Securities.

Increased tensions between the US and China are currently one ballast for gold. Tensions between the two economic powerhouses have risen as US President Donald Trump continues to lash out at China's response to the novel coronavirus outbreak.