Gold soars above US$1,200 as Fed chief Yellen signals go-slow on rate hikes

Gold has surged 14 per cent this year as the turmoil sweeping across financial markets stoked demand for haven assets.
Gold has surged 14 per cent this year as the turmoil sweeping across financial markets stoked demand for haven assets. PHOTO: ST FILE

SINGAPORE (BLOOMBERG) - Gold jumped to the highest level in eight months on Thursday (Feb 11) after Federal Reserve chair Janet Yellen signalled that the US central bank may delay further interest-rate increases should the turmoil in global markets continue.

Bullion for immediate delivery rallied as much as 1.5 per cent to US$1,214.64 an ounce, the highest since May 22, according to Bloomberg generic generic pricing. The metal, which traded at US$1,208.62 at 9.54am in Singapore, is set for a ninth gain in 10 days and is the year's best performing commodity.

Gold has surged 14 per cent this year as the turmoil sweeping across financial markets stoked demand for haven assets. Ms Yellen said on Wednesday the turbulence had tightened financial conditions by pushing down stock prices, supporting the US dollar and raising some borrowing costs.

Futures traders, who at the end of last year predicted a more than 50 per cent chance of a rate rise in March, now see less than 30 per cent odds that borrowing costs will increase this year.

 

"Yellen acknowledges that the recent market volatility has tightened the financial conditions in the US,"  Mr Bernard Aw, a strategist at IG Asia Pte in Singapore, said by phone. Haven demand and a weaker US dollar "are the main things pushing up gold prices now", he said on Thursday.

Higher interest rates also tend to hurt gold as the metal doesn't pay interest like assets such as bonds.

ETP Holdings Investors have poured funds into gold-backed exchange-traded products this year as the outlook for the higher US rates has shifted, and as concerns have increased about the potential for further turmoil in emerging markets, especially weakness in the yuan.

Mr 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.

Holdings in ETPs rose 0.5 per cent to 1,571.3 metric tonnes on Wednesday, the highest level since July, according to data compiled by Bloomberg. Since the start of 2016, the assets have expanded 7.5 per cent following three straight years of losses.