Singapore - Gold rallied above $1 200 an ounce after Federal Reserve Chair Janet Yellen signalled that the US central bank may delay further interest-rate rises should the turmoil in global markets continue, burnishing the investment case for the metal that’s been the best performing commodity in 2016.
Bullion for immediate delivery gained as much as 1.5 percent to $1,214.64 an ounce, the highest level since May 22, according to Bloomberg generic pricing. The metal, which traded at $1,206.39 at 1.48pm in Singapore, is heading for a ninth gain in 10 days. Miners’ shares jumped.
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Gold has surged 14 percent this year as the turmoil sweeping across financial markets stoked demand for haven assets, with weakness in China’s economy and currency spurring concern. Yellen said on Wednesday that the turbulence had tightened financial conditions by pushing down stock prices and raising some borrowing costs. A Bloomberg gauge of the US currency has fallen 1.2 percent in 2016 after gaining for three years.
Yellen’s “more cautious tone and emphasis on a more elevated global risk profile, with particular focus on China, suggests the future path of interest-rate hikes will remain very much a gradual one”, said Mark Keenan, head of commodities research for Asia at Societe Generale SA in Singapore. “Gold’s move higher was intuitive and well-supported by physical inflows” into exchange-traded products.
Investors have poured funds into gold-backed ETPs this year as the outlook for higher US rates has shifted, and as concerns have increased about the potential for further turmoil in emerging markets, especially weakness in the yuan. Kyle Bass, the hedge fund manager who successfully bet against mortgages during the subprime crisis, said there’s scope for a significant devaluation of the Chinese currency.
The holdings in ETPs rose 0.5 percent to 1,571.3 metric tons on Wednesday, the highest level since July, according to data compiled by Bloomberg. Since the start of 2016, the assets have expanded 7.5 percent following three straight years of losses.
Futures traders, who at the end of last year predicted a more than 50 percent chance of a rate rise in March, now see less than 30 percent odds borrowing costs will increase this year. Higher rates tend to hurt bullion as the metal doesn’t pay interest like assets such as bonds. Goldman Sachs Group said this week in a report issued before Yellen’s remarks that the bank still saw bullion dropping to about $1 000 as the Fed would hike three times in 2016.
“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 on Thursday. “We still think we could have two rate hikes at the end of the year.”
Gold’s advance fuelled a rally in related equities. Shares of Zijin Mining Group surged as much as 8.6 percent in Hong Kong as markets re-opened after a three-day trading break. Newcrest Mining, Australia’s biggest gold producer, rose as much as 2.5 percent in Sydney.
* With assistance from Ranjeetha Pakiam and Rishaad Salamat
BLOOMBERG