Gold prices surged to a one-year peak in North America trade on Thursday, on bets the Federal Reserve could be done raising interest rates and as retreating oil prices and losses in global equity markets underpinned demand for assets perceived as safer.
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Spot gold jumped as much as 3.6 per cent to $1,240.90 an ounce, its highest since February 2015, and was up 3 per cent at $1,233.70 at 1254 GMT (6:24 p.m.in India).
Futures traders, who at the start of this year predicted a more than 50 percent chance of a US rate increase in March, now peg the odds of a move by December at just 30 percent.
That, however, did not deter investors from piling on to gold, a non-interest paying asset, as expectations grow that the Fed would not be able raise rates this year. The safe haven feature of gold has come back. The spread between 10-year and two-year U.S. Treasuries shrank to its narrowest since late 2007.
“Gold has been in reverse correlation to stock markets so we anticipate further stock declines with further increased investment in gold”.
Global stocks slumped Thursday as investors shunned risk worldwide amid concern that central-bank efforts to support economic growth are losing potency. “The key risk to gold is that the US economy manages to put in a good performance, like it did previous year”. Federal Reserve chair Janet Yellen on Wednesday told Congress that market turbulence may weigh on the outlook for the economy if it persists.
In other metals, platinum tracked gold and silver, gaining as much as four percent this year, while copper and palladium bucked the trend.
“We used to say that gold’s Achilles’ heel was that it didn’t pay any interest”, said Matthew Turner, a precious metals analyst at Macquarie.
Holdings of the largest gold-backed exchange-traded-fund (ETF), New York’s SPDR Gold Trust, have jumped more than 9 percent to surpass 22.57 million ounces.
Ms Yellen said she expected continued U.S. economic growth would allow the Fed to pursue its plan of “gradual” rate hikes, but her comments kept the central bank’s options open.
Silver rose 0.5% to $15.35/oz, not far from a three-month high reached earlier this week.
The greenback crashed to a fresh 15-month low against the yen, with USD/JPY hit lows of 111.00, while U.S., German and United Kingdom sovereign bond prices surged, as anxiety over slowing growth, weak oil prices and tighter credit markets spurred a flight to safety.
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“It seems as though people are flooding to safe-haven assets”, Wayne Gordon, executive director for commodities and forex at UBS Wealth Management, said in a Bloomberg TV interview in Singapore today.
