Gold crosses US$1,300 threshold, up 22% this year

A woman holds a gold bar at the headquarters of the Australian Bullion Company in Sydney, Australia.
A woman holds a gold bar at the headquarters of the Australian Bullion Company in Sydney, Australia.PHOTO: REUTERS

SINGAPORE (BLOOMBERG) - After three years of being scorned, gold's making a powerful comeback. Prices have pushed above US$1,300 an ounce on speculation that the US central bank will be slow to tighten policy further, bolstering the metal's appeal as the US dollar sags.

Bullion for immediate delivery was 0.2 per cent higher at US$1,294.68 an ounce at 10:11 am in Singapore from US$1,291.55 on Monday, when it rose to US$1,303.82, according to Bloomberg generic pricing.

It's gained 22 per cent this year, rising to the highest since January 2015, as a gauge of the dollar lost 6.4 per cent.

Investors have piled back into bullion in 2016 after prices sank for three straight years as risks to the global economy prompted the Federal Reserve to signal it will take a slower approach to rate increases.

While the metal's appeal has also been boosted by the spread of negative interest rates in Europe and Japan, gold's latest push higher came after the Bank of Japan refrained from adding stimulus last week, which hurt the US dollar. The spike above US$1,300 on Monday came as many financial markets in Asia and Europe were closed.

"The shock of BoJ's surprise inactivity late last week is still lingering, with investors seeking haven in the gold market," said Daniel Hynes, senior commodity strategist at Australia & New Zealand Banking Group Ltd. "Expectations of no imminent rate rise in the US is keeping investor demand strong."

Investors have poured funds into bullion-backed exchange- traded products, reversing a tide that saw assets shrink for three years. Holdings rose 21.6 metric tons to 1,780.7 tons on Monday, the highest since December 2013, according to data compiled by Bloomberg. They're up 22 per cent this year.

Some forecasters have said the rally may last a while longer. Gold may rise to as much as US$1,400, BNP Paribas said last month. ABN Amro Group - which began the year as a gold bear only to reverse its outlook - in March boosted its year-end target to US$1,370 on expectations for low rates.

Gold's advance has fueled a rally in related equities. Newcrest Mining Ltd, Australia's biggest producer, has jumped 52 per cent in Sydney this year. In Hong Kong, Zijin Mining Group Co has surged 31 per cent after rising as much as 3.5 per cent on Tuesday.

The likelihood of higher US rates by year-end is 59.8 per cent, down from 93.3 per cent in January, futures data show. The future so-called new normal for interest rates might be lower than the Fed's median estimate, San Francisco Federal Reserve President John Williams said at a conference on Monday.

The US expanded just 0.5 per cent in the first quarter, the slowest pace in two years. This week, the release of monthly employment figures will provide clues on the strength of the world's biggest economy and help shape the outlook for US monetary policy.

But Goldman Sachs is among forecasters that have stuck to a bearish outlook, at least as of April 22. The New York-based bank said in a note that day it still expects a further strengthening of the US labor market will force the Fed to hike, hurting gold. It saw prices at US$1,100 in three months' time.