Gold strengthens as investors turn to it as safe haven

NEW YORK • Gold pierced the US$1,300 level to extend a New Year rally yesterday. Investors flocked to the metal with global equities in retreat, signs of a slowdown stacking up, and the oldest of havens showing its mettle as exchange-traded funds draw in increased flows.

Futures spiked as much as 0.4 per cent to US$1,300.40 an ounce on the Comex, the highest price since June last year, and were at US$1,296.50 at 6.36am in London. Spot prices were not far behind, hitting as much as US$1,298.60.

Silver also rose to the highest level since July last year.

Gold has become the go-to commodity in the opening days of this year as investors contemplate a deteriorating worldwide outlook and factor in fewer, if any, Federal Reserve interest rate hikes this year.

On Thursday, a gauge of US manufacturing sank by the most since the 2008 recession, a day after Apple cut its revenue outlook, fuelling concern that the trade war with China is taking a bigger-than-expected toll on growth.

The partial US government shutdown has also spurred a risk-off mood.

"This rally in gold is based on investors increasingly realising that gold is 'safe money'," Mr Rainer Michael Preiss, an executive director at Taurus Wealth Advisors, said before prices broke US$1,300. He cited the potential downturn in the global economy, possible central bank policy mistakes and the rising US debt burden among factors spurring demand.

SAFE BET

This rally in gold is based on investors increasingly realising that gold is 'safe money'.

MR RAINER MICHAEL PREISS, an executive director at Taurus Wealth Advisors.

Earlier this week, a report showed a contraction in China's manufacturing, while factory gauges in Italy and Poland also sank.

With equities faltering, global gold-backed ETF holdings added 67 tonnes last month, and in the opening days of the year rose further to the highest since June.

The rally past US$1,300 is considered an important psychological hurdle that could spur additional buying, according to analysts, including Mr George Gero at RBC Wealth Management.

"The market has major worries about the economy, the stock market and political events" including Brexit, said Mr Gero. "If investors keep looking for havens, the price could reach US$1,350," he said.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on January 05, 2019, with the headline 'Gold strengthens as investors turn to it as safe haven'. Print Edition | Subscribe