Gold pushed higher to hold fast a nine-year high as the dollar slides and real yields from bond investments hit rock bottom.
The price of the precious metal rose 0.7 per cent to $1,854 a troy ounce on Tuesday, its highest level since September 2011 and accelerating gains since mid-March to 26 per cent.
The US currency has fallen about 5 per cent against a basket of currencies since mid-May as concerns grow about the economic recovery. The coronavirus pandemic has escalated its spread through the world’s largest economy while investors flocked to the euro as EU leaders agreed on a stimulus package.
Rising precious metal prices come as the real yield on 10-year Treasury bond fell to a low of -0.87 per cent at market close on Tuesday, analysts at MUFG said. Bond yields move inversely to the price.
Investors are looking for real assets that store value, said Nadège Dufossé, head of cross-asset strategy at Candriam, as governments expand budget deficits helped by central banks lowering interest rates and purchasing bonds.
“The bond part is no longer a good hedge for the equity part. Everything is very expensive, cash is not bringing any return,” she said. “Investors have to reconsider traditional allocations so adding gold can be a good idea.”
Bernard Dahdah, senior commodities analyst at Natixis, said that the prospect of another economic contraction in Europe as furlough schemes are removed and the disparity between production and consumption in China added to the bullish mood.
Some strategists said that gold would need a further tranche of support to break through its all-time high of $1,920 a troy ounce.
Any decision by China to peg its currency to the metal and reduce reliance on the dollar could fuel demand for gold.
“Having secured control over Hong Kong, I believe that China will fairly soon move to offer a gold-renminbi exchange standard,” said Charles Gave, founding partner at Gavekal Research. “A tactical question for China is whether it holds fire on this plan until the effect of western economies monetizing huge deficits plays out.”
Silver prices extended its gains to sustain a six-year high. They added 1.5 per cent at $21.64 an ounce, as hopes of a recovery from the pandemic and loose monetary policy lift demand.
Financial Times – July 22, 2020 – Harry Dempsey in London