Gold pauses after surge to record as week opens

Singapore

GOLD opened the week with a surge to a record before retreating to trade little changed as European equities turned positive and the US dollar nudged higher.

Spot bullion surged 11 per cent in July, the biggest monthly gain since 2012, as investors weighed a weaker US dollar and record low US real yields. Strategists are now considering alternatives to government debt, such as cash, credit, dividend shares and gold. RBC Capital Markets said that gold seems like a "freight train" as investors have gone haven hunting.

The health crisis has prompted unprecedented amounts of stimulus being unleashed to shore up economies including lower rates, which are a boon for non-interest-yielding gold. Simmering geopolitical tensions are also boosting demand - US Secretary of State Michael Pompeo said that the Trump administration will announce measures shortly against "a broad array" of Chinese-owned software deemed to pose national-security risks.

"The fall in US 10-year real yields was the most important driver in our view given the strong inverse relationship," Vivek Dhar, an analyst at Commonwealth Bank of Australia, said in a note. "Safe haven demand primarily reflected global growth concerns linked to rising Covid-19 cases around the world and escalating US-China tensions."

Spot gold rose as much as 0.6 per cent to US$1,988.40 an ounce, before retreating to trade 0.1 per cent lower by 10.35am in London. Futures in New York were 0.3 per cent higher after paring earlier gains. Spot silver declined 0.2 per cent to US$24.3345 an ounce after surging 34 per cent in July.

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European stocks rose after factories across the euro area saw a stronger return to growth in July than initially reported, marking the region's first manufacturing expansion in one-and-a-half years.

Infections are picking up again in some US states - cases in California increased by more than the 14-day average and New Jersey's virus transmission rate rose further. Global cases surpassed 18 million as the pandemic is now adding a million infections every four days. Australia's Victoria state tightened restrictions and declared a state of disaster, while the Philippines reimposed a lockdown in Manila.

More gains are seen for gold as the path to economic recovery remains uncertain. RBC Capital Markets said prices may top US$3,000 should the global situation deteriorate materially, with that outlook representing its bull-case scenario, which has a 40 per cent probability. In its base-case view, which has 50 per cent odds, prices will pass US$2,000 in the coming quarters.

"Gold positioning indicates that investors' attitudes toward the metal have changed amid the public health crisis, economic turbulence, and extremely easy monetary policy actions," RBC commodity strategist Christopher Louney said in an Aug 3 note. "Gold's outright price gains have made it a star asset in 2020, arguably appearing more popular than ever." BLOOMBERG