Gold jumps to 2-year high as bullish wagers surge on turmoil

Gold climbed to the highest level in more than two years as investors piled into haven assets.
Gold climbed to the highest level in more than two years as investors piled into haven assets. PHOTO: ST FILE

MELBOURNE/BEIJING (BLOOMBERG) - Gold climbed to the highest level in more than two years and silver surged as investors piled into haven assets on concern political turmoil and the UK's decision to leave the European Union will limit global growth. Silver futures in Shanghai traded near the highest since 2013.

Gold for immediate delivery advanced as much as 1.1 per cent to US$1,371.39 an ounce in London, the highest level since March 2014, and traded at US$1,368.70 by 12:33 pm in Singapore, extending gains to a sixth session. Silver increased as much as 2.4 per cent to US$20.4103 an ounce and traded at US$20.2830. Futures for the metal in Shanghai increased 2.1 per cent as volume climbed.

"Investors are pouring money into gold as there's increasing anxiety over the global economic outlook as well as political uncertainty," said Wu Zhili, Shenzhen-based analyst at Shenhua Futures Co. "The accommodative stance of central banks is also favorable for commodities, especially precious metals."

Precious metals are rising as investors shun risk assets amid market turbulence in the aftermath of the UK vote to leave the EU. The decision is dimming prospects of the Federal Reserve raising US interest rates this year and has prompted speculation that further stimulus may be likely from the European Central Bank and the Bank of Japan. Negative rates in Europe and Japan have already boosted the allure of bullion.

Silver trading has surged on the Shanghai Futures Exchange as open interest declined, a sign that day traders are behind much of the rally, according to Saxo Bank. Volume was 1.6 million contracts by 11:30 am on Wednesday, approaching the 1.9 million contracts for the whole of Tuesday, which was the highest since August. Futures traded at 4,518 yuan a kilogramme, near the 4,599 yuan peak a day earlier, the highest since October 2013.

Gold assets in exchange-traded funds surged 2 per cent to 1,997.28 metric tons on Tuesday, the highest since 2013, and have increased 37 per cent this year, according to data compiled by Bloomberg. Investment has climbed to a record in Huaan Yifu Gold ETF, the largest such fund in China. Holdings in global silver exchange-traded funds rose to an all-time high last month.

Open interest, a tally of outstanding contracts in gold futures on the Comex in New York, climbed to the highest on Friday since November 2010. In the week ended June 28, money managers boosted their net-long positions on the precious metal to the highest since data started in 2006, US Commodity Futures Trading Commission data show.

Gold miners extended gains. Shares of Newcrest Mining added 3 per cent in Sydney and have doubled this year. Zhongjin Gold Corp, China's largest gold miner by reserves, jumped by the exchange limit of 10 per cent to 13.31 yuan in Shanghai trading, while Chenzhou City Jingui Silver Industry Co rallied by the 10 per cent limit in Shenzhen.

Not everyone expects further big increases in gold. The risk of Britain leaving the European Union is now priced in and with the metal more expensive, physical demand is suffering, according to James Steel, an analyst with HSBC Holdings Plc in a Bloomberg Radio interview with Tom Keene. He sees gold peaking near US$1,400 this year.