Spot gold climbed to an all-time high as the dollar plunged and concerns about the global economy boosted demand for havens. Futures also touched a record as a contract roll provided a further boost to its rally.
Bullion’s move came as a gauge of the dollar fell to the lowest in more than a year amid negative real rates in the U.S. and bets that the Federal Reserve will keep policy accommodative when it meets this week. Inflows into gold-backed exchange traded funds this year have surpassed a record set in 2009, with total holdings at an all-time high of more than 3,300 tons.
Spot gold climbed to $1,923.20 an ounce, topping the previous all-time high of $1,921.17 set in 2011.
Futures also touched a record and traded at $1,946.90 by 10:25 a.m. in Singapore. December overtook August as the contract with the highest open interest on Thursday, though final data wasn’t released until the Friday trading session was already underway in Asia. The December contract touched $1,927.10 an ounce Thursday, above the record for the most-active contract of $1,923.70 reached in 2011.
“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 dollar and negative real rates providing further impetus, said Gavin Wendt, senior resource analyst at MineLife Pty.
Investors have poured into gold as the coronavirus pandemic’s hit to global growth underpinned its status as a safe haven. But the metal’s getting support from a long list of factors: geopolitical tensions are rising, real rates have tumbled, the dollar is weaker, and government and central banks worldwide have unleashed vast stimulus measures to try and boost economies.
The environment has even raised the specter of stagflation, a rare combination of sluggish growth and rising inflation that erodes the value of fixed-income investments. In the U.S., investor expectations for annual inflation over the next decade, as measured by a bond-market metric known as breakevens, have moved higher the past four months after plunging in March.
U.S. bond markets have been a key metric to watch and a driving force behind the rush to gold, which is serving as an attractive hedge as yields on Treasuries that strip out the effects of inflation fall below zero. Traders are again eyeing record low yields, with dimming hopes for a sharp U.S. growth recovery fueling expectations that the Fed is about to signal more accommodation ahead.
Investors will get a steer from the Fed this week, with officials meeting 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.
The 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.”
Most analysts are bullish on the metal’s outlook. Goldman Sachs Group Inc. said the metal could reach $2,000 in the next 12 months, and Citigroup Inc. puts a 30% probability on prices topping that level by the end of this year.
By Ranjeetha Pakiam