Gold prices glistened this week, striking one-year highs as the precious metal benefitted from its status as a haven investment in times of economic turbulence.
With growing fears of another global recession, gold on Thursday struck US$1,263.47 per ounce — the highest level since Feb. 6, last year.
“Clearly, gold’s status as the ultimate safe haven asset has well and truly been confirmed, yet again,” City Index trading group analyst Fawad Razaqzada said. “The buck-denominated precious metal has also benefitted from a weaker [US] dollar as hopes about further 2016 rate rises from the [US] Federal Reserve have basically been dashed.”
Investors have been pouring into gold and other haven investments such as the Japanese yen, as stock markets tumble on rising concerns over the global economy, in particular regarding slowing growth in China.
“The gold price is benefitting from tailwind generated by stock markets ... reflecting the risk aversion displayed by market participants,” Commerzbank AG analysts said in a note to clients.
Despite worries over China, Asia’s biggest economy and the world’s second largest, is still set to support demand for the metal going forward, industry body the World Gold Council (WGC) predicted this week.
“Physical demand will continue to be supported by strong central bank purchases, and continued buying of jewelery, bars and coins by households across the world, led by India and China,” said Alistair Hewitt, head of market intelligence at the WGC. “If we just look at the year to date, the investment case for gold is as strong as ever. While stock markets have wobbled, gold has performed well.”
Hewitt spoke as the WGC published its report for last year, which said that total demand for gold was virtually flat compared with a year earlier at 4,212 tonnes.
“Despite a challenging start to the year, gold demand rebounded in the second half of last year as a result of sustained buying from central banks and a strong second half from China and India,” the WGC said in its latest Gold Demand Trends report. “This was particularly evident in the retail investment sector, where bar and coin purchases were led by China and Europe, with strong support from the US, as investors took advantage of weaker prices amid a softening economic backdrop, financial turbulence and ongoing geopolitical tension.”
By Friday in late trading on the London Bullion Market, gold price stood at US$1,239.75 per ounce, compared with US$1,150.35 one week earlier.
“After soaring the most since the 2008 financial crises to a one-year high, gold is seeing a pullback on profit taking,” CMC Markets analyst Jasper Lawler said.
European stocks also rebounded on Friday on higher oil prices, solid German economic growth and rising US retail sales, regaining some ground lost this week on fears of a global recession.
Gold’s stellar performance meanwhile helped sister metal silver to reach a near four-month high at US$15.96 per ounce this week.
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