Gold soars to 8-year high as fears of second coronavirus wave grow

Gold is widely seen as a hedge against inflation and currency debasement. PHOTO: REUTERS

SINGAPORE (BLOOMBERG, REUTERS) - Gold is on the cusp of challenging the hard-to-crack US$1,800 an ounce mark, potentially opening the way for a move towards its record price, as a resurgence in coronavirus cases risks impeding the recovery of the global economy and fans demand for haven assets.

Futures have rallied to within 1 per cent of the level last seen at the end of 2011, the year bullion notched its all-time high, as newly diagnosed cases of Covid-19 and other indicators of the pandemic's spread soared in hot spots across the US. This is driving city and state officials to consider slowing or reversing reopening plans. Anthony Fauci, the country's top infectious disease doctor, warned on Tuesday that he's seeing a "disturbing surge" in cases.

Gold for August delivery on Wednesday (June 24) rose as much as 0.6 per cent to US$1,791.80 an ounce on the Comex, the highest level since 2012, and traded at US$1,785.70 at 10.23am in Singapore. Futures peaked at US$1,923.70 in September 2011.

"The fears of second wave cases, particularly in the US, and also in Latin America, are driving concerns about sustained weakness in the economic recovery and that's certainly supporting safe-haven assets like gold," said ANZ analyst Daniel Hynes. "Continued support that central banks are likely to provide to the market with bond purchasing programmes and monetary easing will clearly keep the rates low for the foreseeable future."

Central banks worldwide have adopted aggressive stimulus measures and kept interest rates low, helping gold prices surge more than 16 per cent this year, as the precious metal is widely seen as a hedge against inflation and currency debasement. With real US interest rates negative, banks such as Goldman Sachs Group now forecast it will hit a record US$2,000 in 12 months.

Investors continue to be drawn to the traditional haven. Holdings in bullion-backed exchange-traded funds have soared to a record, increasing almost 600 tons this year.

Miners are also benefiting from the rally. Shares of Newmont, the world's largest gold company, are up 36 per cent this year, while Australian producer Evolution Mining has surged 43 per cent.

Among other main precious metals, spot silver fell 0.3 per cent, platinum declined 0.3 per cent and palladium dropped 0.4 per cent.

Join ST's Telegram channel here and get the latest breaking news delivered to you.