Gold prices topped $1,500 a troy ounce for the first time in six years, extending a furious summer rally driven by a drop in bond yields and investors’ flight from volatility in global markets.
Gold for August delivery, the front-month futures contract, rose 2.4% to $1,507.30 a troy ounce on the Comex division of the New York Mercantile Exchange, its highest level since April 2013. Prices have risen more than 6% in the past four days and 15% since the end of May.
Several key factors are stoking the gains. Many investors are concerned that a trade war between the world’s largest economies will hurt already fragile global growth and drag down the U.S.
Recent economic data points have further fueled those fears. German industrial production figures for June, reported Wednesday, were much weaker than analysts expected, a sign that Europe’s largest economy continues to struggle.
“The collective mood is one where the trade war has taken on a different life,” said Ira Epstein, a strategist with Linn & Associates. “There’s a lot of fear out there.”
A popular destination for nervous investors, gold tends to attract buying during times of economic or political uncertainty. Other havens, such as the Japanese yen and Swiss franc, have also notched big gains in recent weeks.
Prices for the metal have also benefited from falling bond yields. Because it offers no yield, gold tends to become more alluring to investors when yields decline.
Government-bond yields around the world slid further on Wednesday after interest-rate cuts by three central banks exacerbated investors’ fears of slowing growth around the globe. The yield on the benchmark 10-year U.S. Treasury note closed at 1.675% after dipping below 1.6% earlier in the session. Bond yields fall as prices rise and the 10-year yield now stands at its lowest level since 2016.
At the same time, some investors are becoming increasingly nervous that central banks’ efforts to kick-start their economies may not be working as intended. Many point to Europe and Japan, where several years of negative interest rates have failed to spark sustained growth or inflation.
“The concern is that the global economy may have a much steeper decline than investors have been pricing in,” said Bart Melek, head of commodity strategy at TD Securities.
The recent rally has been a boon for gold investors, who watched prices generally stay in a range between $1,150 and $1,350 for about three years before this summer.
The flurry of buying has also boosted shares of gold miners, which are now among the market’s best performers in 2019. The VanEck Vectors Gold Miners ETF is up 41% in the past three months, with shares of
gaining roughly that much in that span and Newmont Goldcorp climbing 28% during the stretch.
In other signs of momentum in the sector, big-name investors such as Ray Dalio, Paul Tudor Jones and Jeffrey Gundlach have publicly touted gold’s appeal in recent months.
Meanwhile, hedge funds and other speculative investors pushed net bets on higher prices to their highest level since 2016 last month, Commodity Futures Trading Commission data show. And hundreds of millions of dollars have flowed into gold exchange-traded funds such as the SPDR Gold Trust ETF in recent days, according to FactSet.
Central banks have also been a steady source of demand for the metal in recent years, as they seek to diversify their holdings away from the U.S. dollar.
Central banks have purchased nearly 374 tons of gold in the first half of the year after hoarding over 650 tons during 2018 in their biggest buying spree in decades, according to data from the World Gold Council and TD Securities Inc.
Some investors are particularly wary that lower interest rates will do little to spur investment by global businesses, which have curtailed spending as trade tensions swirl. Many see the prospect of an overseas slowdown engulfing the U.S. as a main threat to the economic expansion.
“The jury is still out on whether the rate cuts can prolong the cycle,” said Shaniel Ramjee, a senior investment manager at Pictet Asset Management, which has increased its gold holdings this year. “You would have to see some acceleration from the world outside the U.S.”
Write to Ira Iosebashvili at firstname.lastname@example.org and Amrith Ramkumar at email@example.com
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