Gold tops US$1,900 for first time since 2011, heads toward record

[SINGAPORE] Spot gold topped US$1,900 an ounce for the first time since 2011 and edged closer to an all-time high with flaring geopolitical tensions and concern over global growth driving demand for haven assets.

Increasing signs that the prolonged pandemic is stalling an economic recovery and the recent spat between China and the US are underpinning bullion's appeal. The metal is also getting support from a confluence of low or negative real rates and a slipping US dollar amid massive liquidity injections from governments and central banks worldwide. The weaker US dollar and plunging yields on government bonds lower the opportunity cost of owning gold.

Gold is heading for a seventh weekly gain, the longest stretch since 2011, while silver is poised for its biggest weekly advance in about four decades. Gold may reach the all-time high by early next week, according to a trader at RJO Futures in Chicago.

"The pace of this thing is unbelievable," Bob Haberkorn, a senior market strategist at RJO, said by phone. "People just want to buy, buy, buy, they just want to be in - they don't want to miss it. People are preparing for more money printing, lower dollar in the future and hedging. And there's no yield on Treasuries right now, so gold is a safe spot given the circumstances of the central banks and the coronavirus."

Spot gold rose 0.7 per cent to US$1,900.19 an ounce by 1.46pm in New York. Prices are nearing the record US$1,921.17 reached in September 2011. Comex gold futures for August delivery rose 0.4 per cent to settle at US$1897.50. Spot silver also advanced, bringing gains this week to more than 17 per cent, the most since 1980.

Gold's rally may extend into 2021 "on dollar wobbles amid rising geopolitical risks in a lower-for-longer interest-rate environment," Eily Ong, an analyst at Bloomberg Intelligence, wrote in a note. UBS Group AG raised its near-term forecast for bullion to $2,000 by the end of September.

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"When interest rates are zero or near zero, then gold is an attractive medium to have because you don't have to worry about not getting interest on your gold and you see the gold price will rise as uncertainty in the markets are rising," Mark Mobius, co-founder at Mobius Capital Partners, said in a Bloomberg TV interview. "I would be buying now and continue to buy."

Precious metals funds saw investment inflows of US$3.8 billion in the week to July 22, the second-largest weekly amount ever, Bank of America Corp strategists said, citing EPFR Global data.

FRESH HIGHS

While spot gold prices are about US$20 away from the all-time high, some futures contracts on the Comex are already trading even higher. December, which overtook August as the contract with the highest open interest according to data released when Friday's Asian trading session was already underway, touched US$1,927.10 an ounce Thursday. That's above the record for the most-active contract of US$1,923.70 reached in 2011.

On the geopolitical front, Secretary of State Michael Pompeo cast China's leaders as tyrants bent on global hegemony. His comments came after the US unexpectedly ordered China to close its consulate in Houston, following what it said were years of espionage directed from the diplomatic compound. Beijing has rejected the accusations and on Friday ordered the US to close its consulate in the southern Chinese city of Chengdu.

Also on investors' radars is the prospect for fresh fiscal and monetary policy measures as the path to recovery remains uncertain. Europe's private-sector activity data for July showed a return to growth, yet firms cut jobs for a fifth straight month. European Union leaders this week agreed on an unprecedented stimulus package.

The Federal Reserve meets next week to decide if further accommodation is needed, while President Donald Trump promised a "great third quarter" for the economy.

BLOOMBERG