Gold soared to an all-time high and the dollar weakened to a multiyear low as sharp increases in US coronavirus cases and flare-ups around the world weighed on investor confidence.
The price of the precious metal, which investors typically view as a haven in times of uncertainty, climbed as much as 2.2 per cent to a record $1,944.71 per troy ounce on Monday. Its value has jumped by more than a quarter this year, making it one of the best-performing asset classes.
Gold has rallied in recent sessions as doubts have deepened over the prospects for a smooth economic recovery. The US reported a total of 62,000 new coronavirus cases on Sunday with states including Florida, Tennessee and Arizona recording the highest number of new cases per million people.
The yellow metal has also been boosted by the negative returns investors garner when holding haven debt, such as that issued by the US and Germany, after accounting for inflation, according to analysts at ING.
The spectre of massive stimulus programmes launched by fiscal and monetary authorities around the world stoking increases in the prices of goods and services in the years to come has also been a boon to gold, considered by many investors to be a hedge against inflation.
European markets fell in early trading, with the regional benchmark Stoxx index slipping 0.3 per cent and London’s FTSE 100 down 0.2 per cent — weighed down by significant losses for airlines after the UK warned on travel to Spain.
“This weekend we perhaps got a glimpse of how challenging life will be this winter without a vaccine,” said Deutsche Bank strategist Jim Reid, pointing to rising case numbers in the US and parts of Europe and Asia.
Spain has faced a sharp uptick in cases across three regions, with Germany also reporting a rise. The situation has continued to deteriorate across Latin America while in Asia, Hong Kong and the Australian state of Victoria have also seen significant increases.
The jump for gold came as the dollar lost ground against a swath of currencies. The dollar index, which measures the currency against a basket of trading peers, fell as much as 0.5 per cent to its lowest level since June 2018.
“Clearly the US dollar is really being questioned very openly. The question is: If you're negative the dollar what are you positive on?” said Robert Rennie, global head of market strategy at Westpac. “Gold is the one asset market that is really reflecting heightened risks from rising geopolitical tensions.”
Tension between the US and China was heightened at the weekend by the arrest of a Chinese researcher who American authorities said had been hiding in the country’s San Francisco consulate. Washington has alleged that the researcher is a member of the Chinese military.
“The China hawks in the White House are . . . doing all they can to burn bridges to reach a point of no return in US-China relations to ensure there can be no detente-style backsliding under a potential Biden administration,” said Michael Every, global strategist at Rabobank.
Qi Gao, a currency strategist at Scotiabank, said tit-for-tat closures of consulates in Houston and Chengdu last week had stoked tension to the point that it had weighed on the US currency. “In the coming weeks you’ll see the dollar weakening further,” he added.
The dollar’s weakness came ahead of a meeting by the US Federal Reserve’s rate-setters on Wednesday. Traders expect that the central bank will keep interest rates at close to zero.
Republicans are set to unveil their proposals for a new round of stimulus later on Monday. Existing benefits, passed at the start of the coronavirus crisis in March, are due to expire at the end of the month.
The Japanese yen, another perceived haven, strengthened 0.6 per cent to a four-month high of ¥105.50 per dollar. The pound rose 0.2 per cent to $1.2823 and the euro gained 0.4 per cent to $1.1704.
Asian equity markets were mixed. China’s CSI 300 index of Shanghai and Shenzhen-listed stocks added 0.5 per cent while Hong Kong’s Hang Seng slipped 0.4 per cent. Japan’s Topix index rose 0.2 per cent as traders returned from a long weekend.
https://news.google.com/__i/rss/rd/articles/CBMiP2h0dHBzOi8vd3d3LmZ0LmNvbS9jb250ZW50LzcyOGVhYjM1LTQ3NzEtNGI0Zi05NTk3LWEyNWM2Yzg2M2VmNdIBP2h0dHBzOi8vYW1wLmZ0LmNvbS9jb250ZW50LzcyOGVhYjM1LTQ3NzEtNGI0Zi05NTk3LWEyNWM2Yzg2M2VmNQ?oc=5
2020-07-27 08:46:00Z
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