Glenys Sim, Debarati Roy and Eddie van der Walt New York and London
GOLD exceeded $1 300 (R15 112) an ounce for the first time since August on speculation slowing global growth will prompt central banks to boost stimulus, spurring haven demand.
Investors are adding to gold-backed funds at the fastest pace in three years. Open interest in New York futures and options is at the highest in eight weeks, and money managers are the most bullish since August. Silver also climbed yesterday in London in its best start to a year in three decades.
After shunning gold for two years, investors are returning to the precious metal amid concern US growth won’t be enough to offset weakness in foreign economies. Policymakers in Europe and Asia are being challenged to come up with new ways to spur growth amid prolonged below-target inflation. Bullion rose 70 percent from December 2008 to June 2011 as the Federal Reserve pumped more than $2 trillion into the financial system.
“Capital is flowing into safe assets such as gold,” said Mark To, the head of research at Wing Fung Financial Group in Hong Kong. “The market is currently full of news that’s supportive of higher gold prices – expectations for lower global growth, uncertainty around what the ECB will do and more stimulus.”
Prices jumped 4.7 percent in London last week, the most since 2013, as investors sought safety from turmoil in currency markets after the Swiss central bank unexpectedly abandoned the franc’s cap against the euro. Gold climbed 9.8 percent this year.
The International Monetary Fund and World Bank cut outlooks for global growth this month, as they upgraded estimates for American expansion.
While diverging monetary policies have boosted the dollar, the slump in commodities and weakness in foreign economies have raised speculation the Fed may hold off raising rates. This can raise gold’s appeal as a store of value as the precious metal generally gives investors returns only through price gains.
The European Central Bank (ECB) is expected to announce asset purchases today, further weakening the euro which is near an 11-year low, while the Bank of Japan yesterday cut its inflation forecast and kept its unprecedented monetary easing unchanged. Priced in euros, gold reached the highest since 2013.
Investors bought 37.9 tons through exchange-traded products in the three sessions through Tuesday, the most since 2011, data show. They’re holding 1 633.5 tons, the most since November 6. Assets fell to the lowest since 2009 on January 14.
Analysts are split on the 2015 outlook. Goldman Sachs and Société Générale expect the precious metal to fall, with the Paris-based bank forecasting prices to reach $1 000 by December 31, it said in a January 14 report. Standard Chartered expects the precious metal to rally to $1 320 by the fourth quarter, it said on Tuesday.
Gold fell 1.4 percent last year after a 28 percent loss in 2013, marking the first consecutive annual slide since 2000. A surge in equities and an improving US economy prompted some investors to lose faith in the metal. The Standard & Poor’s 500 index of shares is heading for a second monthly drop, the longest slump since 2012.
The precious metal’s rally has taken its 14-day relative-strength index above 70, signalling to some traders and analysts that prices may be poised to retreat. – Bloomberg