The stars have aligned for gold as concerns the coronavirus outbreak may damage growth, hurt risk assets and add to pressures for easier monetary policy combine to trigger a powerful global hunt for havens.
Bullion headed for the biggest weekly gain in more than six months as prices hit a seven-year high. With bond yields in retreat and real U.S. interest rates sinking further into negative territory, gold-backed exchange-traded funds have posted a record run of inflows and stand at the most ever.
“The market is preparing for an increasingly gold-positive macro-backdrop, in many ways related to the effect from the coronavirus outbreak and its economic implications,” RBC Capital Markets said in a note.
The traditional haven has rallied more than 7% this year on growing risk-off sentiment, even as the dollar strengthened at the same time. U.S. government bond markets saw a rush of buying Thursday that piled up bets on rate cuts, while the Commonwealth Bank of Australia expects the Federal Reserve to ease twice in the second half as the virus threatens the global economy.
“Safe-haven demand is being driven by global growth fears linked to the coronavirus,” Vivek Dhar, an analyst at CBA, said in a note. “However, history has shown that safe-haven demand only provides a temporary boost to gold prices. The most dominant driver of gold prices over the long term is the negative relationship between long-term U.S. real yields and gold prices.”
Spot gold climbed as much as 0.8% to $1,632.67 an ounce, the highest since February 2013, and was at $1,631.63 at 7:06 a.m. in London. Prices are up 3% this week, the most since the week ended Aug. 9.
Holdings in bullion-backed ETFs have seen inflows for 22 consecutive days to Thursday, the longest stretch ever. Volumes totaled 2,610.95 tons, according to data compiled by Bloomberg.
“Given the global supply chain, even the U.S. is expected to be affected to some extent, no surprise then we are seeing gold looking attractive,” said Jingyi Pan, a market strategist at IG Asia Pte in Singapore. “The fact that the prices had surged above the $1,600 level and stayed there even with the USD strength also shows that it would likely stay elevated for some time.”
Among other main precious metals, silver headed for the biggest weekly gain since August, and platinum also rose. Palladium has gained 10% this week after hitting a record $2,849.61 an ounce on Wednesday, supported by concerns over a widening global deficit.
Stronger demand and constrained supply will deepen the deficit in the palladium market to 1.3 million ounces this year, keeping prices high, according to Australia & New Zealand Banking Group Ltd.