Gold's rally breaks 2011 record with sights set on US$2,000

Singapore

SPOT gold blasted past its longstanding record as the US dollar plunged and concerns about the global economy boosted demand for havens. Silver rode on its coattails, jumping to the highest in nearly seven years.

Bullion's move, which may put it on track to take out US$2,000 an ounce, came as a gauge of the US dollar sank to the lowest in more than a year amid negative real rates in the US and bets that the Federal Reserve will keep policy accommodative when it meets this week on July 28-29. Expectations are they'll keep interest rates near zero, while markets will also be watching for any signals around shifts in strategy.

Unrelenting investor demand has helped fuel price gains, with inflows into gold-backed exchange traded funds this year already topping the record set in 2009.

Spot gold surged to US$1,944.71 an ounce, beating the previous high set in 2011 by more than US$20. On the Comex, futures rose to a record of US$1,966.50 as a contract roll provided a further boost to its rally.

Investors have turned to gold as the coronavirus pandemic's hit to global growth underpinned its status as a haven. But the metal's getting support from a long list of factors: geopolitical tensions are rising, real rates have tumbled, the US dollar is weaker, and government and central banks worldwide have unleashed vast stimulus measures to try and boost economies.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

"Strong gains are inevitable as we enter a period much like the post-GFC environment, where gold prices soared to record levels as a result of copious amounts of Fed money being pumped into the financial system," with a weak US dollar and negative real rates providing further impetus, said Gavin Wendt, senior resource analyst at MineLife Pty. Gold may consolidate before setting its sights on US$2,000 and above in coming weeks, he said.

The current environment has even raised the spectre of stagflation, a rare combination of sluggish growth and rising inflation that erodes the value of fixed-income investments. In the US, investor expectations for annual inflation over the next decade have moved higher the past four months after plunging in March.

US bond markets have been a key metric to watch in determining the path for gold, with the metal serving as an attractive hedge as yields on Treasuries that strip out the effects of inflation fall below zero.

The Fed meeting may be a platform for a strong message that change is coming, opening up the possibility for more unconventional policies further down the line, according to Chris Weston, head of research at Pepperstone Group in Melbourne. "If we think about real yields and what the Fed is doing, it just suggests to me that it's a matter of time before real yields continue to trend lower and gold goes higher."

Increasing concerns about the virus pandemic as well as deteriorating relations between the US and China add to gold's allure, and most analysts are bullish on the metal's outlook. Goldman Sachs Group Inc said the metal could reach US$2,000 in the next 12 months, and Citigroup Inc puts a 30 per cent probability on prices topping that level by the end of this year.

Spot gold traded at US$1,933.44 an ounce by 7.32am in London. Newcrest Mining Ltd, Australia's biggest gold producer, advanced as much as 5.6 per cent in Sydney, as Zijin Mining Group Co's Hong Kong-listed shares rose as much as 7.9 per cent.

Silver followed bullion higher, jumping more than 7 per cent to US$24.3993 an ounce, the highest since 2013. BLOOMBERG