Gold hits two-year high

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London—Gold hit its highest in more than two years as a drop in stock markets and a slide in some bond yields to record lows after Britain’s vote to leave the European Union prompted investors to seek out bullion as a haven from risk. European equities fell and Germany’s 10-year bond yield slid to a record low for a second day on Wednesday, as fears about the impact of Brexit on economic growth gripped global markets and underpinned demand for safe-haven bonds.
Spot gold was up 1.1 percent at $1,370.80 an ounce at 1145 GMT, while US gold futures for August delivery were up $15.30 an ounce at $1,374.00. “Panic is back in the market you can see that not only in gold, but also with stock markets,” LBBW analyst Thorsten Proettel said. “Right now, everyone is looking for a strategy from London.” As well as investors shaken by stock market volatility fleeing to the safety of gold, the drop in bond yields has cut the opportunity cost of holding bullion. Yields on US Treasuries, the benchmark for bonds worldwide, hit record lows out to 30 years on Tuesday.
“Bonds are in negative territory now, and big investors are looking for any possibility of avoiding negative interest rates,” Proettel said. “So gold may become more interesting for them.” The world’s largest gold-backed exchange-traded fund, SPDR Gold Shares, posted the biggest one-day surge in its holdings in more than six years on Tuesday. They jumped 28.8 tons to 982.72 tons, their highest since June 2013.
Gold’s move higher came in the teeth of a stronger dollar, as has happened before in periods of elevated risk aversion. The pound dropped to a fresh 31-year low against the dollar. Gold priced in sterling rose to its highest in over three years, touching a high of 1,069.36 pounds an ounce. Investors will also be watching for clues on US Federal Reserve interest rate policy from minutes of its June 14-15 meeting later in the day, after New York Fed President William Dudley said the bank can be patient on raising rates.
“We continue to expect US real rates to fall from here and ultimately for equilibrium real rates to settle lower and have limited upside,” UBS said in a note. “These factors justify strategic gold allocations across different types of investors.” Among other precious metals, silver was up 1.5 percent at $20.19 an ounce, while platinum was down 0.9 percent at $1,061.99 an ounce and palladium was down 0.6 percent at $594.60 an ounce.
Meanwhile Gold slipped as US jobs data supported the dollar, after rallying to its highest level since March 2014 a day earlier on the back of concerns about Britain’s vote to leave the European Union. Financial markets have been extremely volatile since Britain voted in a referendum on June 23 to leave the EU, knocking equities and pushing some bond yields to record lows. The moves have boosted the appeal of so-called safe-havens such as gold and silver. Spot prices reached their highest level since March 2014 on Wednesday at $1,374.91 an ounce but have struggled to maintain those levels as stocks and the US dollar rose. Spot gold was at $1,354.91 an ounce at 1340 GMT, down 0.6 percent, while US gold futures for August delivery were down $10.60 an ounce at $1,356.50.
Mitsubishi analyst Jonathan Butler said while the stronger dollar was a headwind for gold, it still looked set for further gains after rallying more than 10 percent since the Brexit vote. “I think gold could make further gains toward $1,381, the 38.2 percent Fibonacci retracement of 2011 high to 2015 low, and above that the $1400 psychological level,” he said.
Traders are awaiting further clues on the outlook for US Federal Reserve policy from Friday’s US non-farm payrolls (NFP) data, seen as a barometer of the economy’s health. Gold jumped last month after data showed a slowdown in hiring in May. Another weak reading could indicate that the Fed will hold off on further rate increases, particularly given the economic uncertainty following the Brexit vote. “In the last few weeks we’ve seen a two-step move. First, we had the Brexit vote, which led to a rise in safe-haven demand, and then we saw markets starting to reprice monetary policy among central banks,” Danske Bank analyst Jens Pedersen said.
“We had these two factors working in the same direction for gold.” Gold is highly sensitive to rising US interest rates as they lift the opportunity cost of holding non-yielding assets such as bullion, while also typically boosting the dollar, in which the precious metal is priced. “In the short term, I do see a risk that the dollar will rise further, so that will again cap the upside for gold,” Pedersen said. Elsewhere, data showed China’s gold reserves rose to 58.62 million ounces at the end of June from 58.14 million a month before. Silver was down 1.9 percent at $19.65 an ounce, while platinum was up 0.1 percent at $1,082.80 an ounce and palladium was down 0.1 percent at $604 an ounce.—Reuters

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