LONDON: Gold climbed 1.8 per cent, its biggest one-day rise since May 11, to record highs on Tuesday as the dollar fell versus the euro and as recent volatility in the currency markets boosted demand for the metal as a safe store of value.
An announcement by the Bank of Japan that it would create a pool of funds to buy assets to tackle strength in the yen also helped gold. Moves by major economies to curb strength in their currencies are giving a major lift to the metal.
Brazil on Monday doubled a tax on foreign investors buying local bonds in an attempt to curb a currency rally that has turned into an issue in the country’s presidential race.
Spot gold hit a high of $1,340.20 an ounce and was bid at $1,337.50 an ounce at 1549 GMT, against $1,315.20 late on Monday. US gold futures for December delivery reached a peak of $1,341.70 and were later up $21.90 at $1,338.70.
“There are a number of supporting factors to the gold price currently, including a stronger euro/dollar and the resumption of the positive correlation between gold and euro/dollar, as well as strong prospects for further quantitative easing in the US,” said BNP Paribas analyst Anne-Laure Tremblay.
“However, we may see a correction on the FX side later this year on deflation risks in the euro zone,” she said. “In addition, the increase in narrow liquidity may translate into stronger risk appetite and… favour other assets besides gold.”
Gold prices appreciated as the dollar tumbled to an 8-1/2 month low against a basket of six major currencies, pressured by broad-based demand for the euro.
Gold is sensitive to moves in the dollar as weakness in the unit tends to lift its appeal as an alternative asset and makes dollar-priced commodities cheaper for other currency holders.
Gold hit all-time highs in six consecutive sessions to Friday, and after building a base above $1,310 an ounce on Monday, rose nearly 2 per cent to a new record late on Tuesday, lifted by concerns over further monetary easing.
Any further moves in the foreign exchange markets or signs of currency intervention are likely to be positive for gold.
“In the short term we have got the annual meeting of the World Bank and the IMF coming up this weekend, so there are going to be some more FX-related headlines ahead of that,” said Tom Kendall, an analyst at Credit Suisse.
“There is no easy route out of these kinds of issues, where you have an implicit weak dollar policy now in the US … and emerging markets trying to protect their own exporters by not letting their currencies appreciate too rapidly and trying to head off asset bubbles caused by the strength of capital inflows. Those trends aren’t going away in a hurry.”
Demand for physical gold retreated as prices rose again, however. Buying in main gold consumer India was muted as the weaker rupee added to pressure on local buyers.
“As (jewellery demand) clearly weakens at the high price level, the dependence on investment demand rises, and this is still relatively robust even if the world’s largest gold ETF, SPDR Gold Trust, reported slight outflows again yesterday,” said Commerzbank in a note.
“Net long positions of speculative financial investors recently rose to a 12-month high.”
Holdings of the world’s largest gold-backed exchange-traded fund, New York’s SPDR Gold Trust, declined for a third session, while those of the largest silver ETF, the iShares Silver Trust dipped from record highs.
Silver was at $22.59 an ounce against $21.97, having earlier hit a 30-year high at $22.69 an ounce. Silver continued to outperform gold, with the number of ounces of silver needed to buy an ounce of gold slipping to a one-year low at 59.15.
Platinum, buoyed by strength in gold, hit a 4-1/2 month high at $1,696.50 an ounce and was later at $1,693 against $1,664.85, while palladium was at $574 versus $557.83. – Reuters