Gold advances to three-month high on virus woes, inflation

[SINGAPORE] Gold rose to the highest in more than three months as concerns over the pace of a global recovery crept back in following a flare-up in coronavirus cases in parts of Asia.

The pandemic is wiping out "entire families" in villages in India, where more people are saying the scale of the crisis is much bigger than official numbers reveal. The World Economic Forum is cancelling the annual meeting it was planning to hold this August in Singapore, while cases in Thailand have surged.

Investors will turn to the minutes from the Federal Reserve's April meeting due on Wednesday for potential clues to officials' views on the recovery and how they define "transitory" when it comes to inflation. Fed vice-chair Richard Clarida said on Monday that the weaker-than-expected US jobs report for April showed the economy had not yet reached the threshold to warrant scaling back the central bank's massive bond purchases. Meanwhile, Fed Bank of Dallas president Robert Kaplan said supply and demand imbalances and base effects will contribute to elevated inflation this year, but he expects price pressures to ease in 2022.

Gold's rebound puts it close to erasing this year's declines, with recent inflows into bullion-backed exchange-traded funds (ETF) signalling a boost to investor sentiment. Expectations for further increases in consumer prices could start to bolster demand for gold as a hedge.

"It seems inflation fears are finally translating into higher precious metals prices," said John Feeney, business development manager at Sydney-based bullion dealer Guardian Gold Australia. "ETF investors are starting to swing into net-buyers again, after the recent consolidation, and it makes sense for the metals to play catch up to the recent moves higher in other commodities. We also have a lot of uncertainty with Covid-19 strains and mutations in the Asia-Pacific region that would be leading to safe haven buying."

Spot gold rose as much as 0.2 per cent to US$1,870.73 an ounce, the highest since Feb 1, and was at US$1,868.10 by 9.11am in Singapore. Silver, palladium and platinum all gained. The Bloomberg Dollar Spot Index was little changed.

BLOOMBERG