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Gold tops US$1,400 on weak US dollar and geopolitical, economic worries

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Gold prices broke US$1,400 an ounce to hit a near-six-year high on Friday as the weaker US dollar, economic concerns and geopolitical tensions saw investors pile into the safe-haven commodity.

[HONG KONG] Gold prices broke US$1,400 an ounce to hit a near-six-year high on Friday as the weaker US dollar, economic concerns and geopolitical tensions saw investors pile into the safe-haven commodity.

Demand surged after the Federal Reserve on Wednesday indicated it would likely cut interest rates soon - for the first time in a decade - which sent the dollar tumbling across the board and making it cheaper to buy the yellow metal.

The announcement came as central banks around the world adopt a more dovish stance in the face of a stuttering global economy and as investors fret over the trade outlook with the US and China embroiled in a long-running trade war.

It also coincided with news that Iran had shot down a US "spy drone", which it said was in its airspace, ratcheting up a standoff with Washington and fuelling concerns of a conflict between the old enemies.

Gold prices have surged around 10 per cent in June and an ounce cost US$1,411 in Asian trade, its highest since September 2013.

"Toppling bond yields have historically been significant indicators for the pulse of the markets," said Stephen Innes, managing partner at Vanguard Markets.

"Falling yields continue flashing red with recessionary concerns, while the strengthening yen is a harbinger of market worries, suggesting that haven demand is loading up on risk premiums as the potential for geopolitical trouble mounts."

Neil Wilson, chief market analyst at Markets.com, added: "The opportunity cost of holding gold is significantly lower as real yields fall, while the rather dubious and risky outlook for the global economy, US-China trade and geopolitical tensions in the Middle East mean there is plenty of reason to be seeking shelter in gold."

Gold prices hit a record high above US$1,900 in 2011 during the euro zone debt crisis.

However, it began falling two years later when the Federal Reserve indicated it would begin winding down its huge bond-buying stimulus programme put in place to weather the global financial crisis. The move to tighten monetary policy saw the US dollar strengthen, making gold more expensive to holders of other currencies.

"The past seven years of hawkish promises about higher rates and central bank balance sheet unwinding was, as gold investors warned, a blip in the trend of monetary policy that is loose, looser and looser still," said Ned Naylor-Leyland of Merian Global Investors.

 

AFP/BLOOMBERG