Gold’s surprise end-of-year rally picks up pace as dollar sags

SINGAPORE: Gold’s end-of-year stealth rally is gaining ground even as investors target risk assets including equities and early data suggest that macro-economic conditions are set to be more benign in 2020 than this year.

Prices climbed for the fifth time in six sessions as the dollar fell again and funds ploughed more money into bullion-backed exchange-traded funds. The advance burnishes a yearly gain, with spot prices up 18% in 2019 and heading for the highest close since November.

The strong bullish momentum is “largely due to US dollar weakness,” said Benjamin Lu, an analyst at Phillip Futures Pte in Singapore. “A dovish hold in US monetary policy by FOMC policy makers has softened greenback prospects considerably while bolstering bullion’s appeal.”

Gold has climbed for three straight weeks, while a gauge of the greenback is set for the biggest quarterly loss since the first three months of 2018.

After cutting rates three times this year, the Federal Reserve’s rate-setting Federal Open Market Committee, or FOMC, is seen staying on hold through 2020. The central bank is also on watch this week to prevent any repo market disruption.

“Amid a low trading environment, lower is the path of least resistance for the USD,” said Rodrigo Catril, senior foreign-exchange strategist at National Australia Bank Ltd. in Sydney. “Abundant USD liquidity – courtesy of the Federal Reserve – is pushing short-dated US yields lower.”

Spot gold rose as much as 0.4% to $1,515.87 an ounce, the highest since Nov 1, and was at $1,513.88 at 6.33 am in London.

In September, prices hit US$1,557.11, the highest in more than six years. The Bloomberg Dollar Spot Index fell 0.2% to the lowest since July; it’s down 2.5% this quarter.

Gold’s latest uptick presents a situation where prices continue to make headway even while US-China trade tensions ebb, global equities are at a record, and economic prospects are looking up. Citigroup Inc has said it sees more upside for gold as there’s little possibility of the Fed hiking in 2020.

Minutes from the FOMC’s December meeting will be released on Friday, with investors on the lookout for more colour on the thinking behind the unanimous decision to keep rates on hold after the three cuts in 2019, and on policymakers’ apparent preference to keep them steady next year.

Global holdings in gold-backed ETFs expanded 6.3 tons last week after a 7.2 ton build the prior week, according to data compiled by Bloomberg. Assets have risen 14% this year.

Still, Phillip Futures’s Lu said he expects that gold will “soften considerably” in 2020 as investors ease up on havens and pivot toward interest-bearing assets amid rising US bond yields and robust risk appetites.

Silver and platinum also climbed on the final Monday of the year. Spot silver added 0.8%, extending this year’s gain to almost 16%, while platinum rose 0.5% for an annual advance of 20%.

Palladium, which was 0.2% lower, has come out tops for annual performance by some distance with a 51% rally.