Gold jumps to highest in 6 years

Bullion’s been on a tear this month as the dollar weakened after the Fed opened the door to an interest rate cut and other central banks also pivoted to a more dovish stance. (Bloomberg pic) 

SINGAPORE: Gold’s rally shows no signs of abating.

The metal surged to the highest level in six years as fresh US sanctions on Iran added to uncertainty in global markets, with semi-official Iranian Students News Agency reporting that the path to a diplomatic solution with Washington had closed, citing foreign ministry spokesman Abbas Mousavi.

Investors are also looking to the G-20 summit this weekend where Presidents Donald Trump and Xi Jinping are scheduled to meet to discuss trade, although US officials are downplaying expectations, insisting America wasn’t prepared to compromise on demands for meaningful Chinese economic reforms.

Another key event on traders’ watchlist is Federal Reserve Chairman Jerome Powell’s speech in New York later Tuesday, which will touch on monetary policy.

Bullion’s been on a tear this month as the dollar weakened after the Fed opened the door to an interest rate cut and other central banks also pivoted to a more dovish stance.

Investors are taking note – pouring into exchange-traded funds backed by the precious metal and boosting net long positions in US gold futures and options.

Morgan Stanley said gold is its top commodity pick on a six-month view as the uncertain macroeconomic outlook adds to its appeal.

In addition to the Fed’s stance on interest rates, the latest worsening of US-Iran relations had contributed further to the sharp rally in gold this week “with the easier way out – diplomacy – now off the table according to Iranian officials,” said Jingyi Pan, strategist at IG Asia Pte in Singapore. “The rise in gold prices into Tuesday had likely been a knee-jerk as the market ponders what could come next in this conflict.”

However, “the elephant in the room remains the US-China trade talks and any deterioration into next week should shift us towards the resistance at US$1,480,” Pan said. “This may not be a one-way street either given the overbought situation, but amid the uncertainties, the market may be keen to buy any dips.”

Chinese officials this week said both sides need to be prepared to compromise for talks to succeed, but US officials have so far maintained a hard line.

Tensions in the Middle East are also rising following Trump’s sanctions on Iran’s supreme leader, Ayatollah Ali Khamenei, and eight senior military commanders, that deny him and his office access to financial resources.

“The global capital market’s mood is shaky due to the fear of the unknowns and it’s this uncertainty that will continue to provide the jet fuel for an already high-octane gold market,” Stephen Innes, managing partner at Vanguard Markets Pte, said in a note.

A significant withdrawal by investors from the US dollar, which intensified after last week’s Fed policy meeting, “further adds to the glimmering gold market appeal,” Innes added.

Spot gold climbed as much as 1.4% to US$1,439.21, the highest since May 2013, and traded at US$1,428.30 at 7.45am in London. A gauge of the US dollar hit a three-month low.

In other precious metals, silver fell 0.3%, platinum lost 0.2%, and palladium fell 0.8%.