All that glitters: Investors turn to gold's stability

Global uncertainty adds jet fuel to a high-octane market, said one analyst.

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    A 12.5kg gold bullion bar sits at a precious metal refinery in Switzerland [Bloomberg Creative Photos]
    A 12.5kg gold bullion bar sits at a precious metal refinery in Switzerland [Bloomberg Creative Photos]

    Gold's rally shows no signs of abating, with prices climbing afresh to a six-year high as cash keeps pouring into exchange-traded funds.

    Fresh U.S. sanctions on Iran added to uncertainty in global markets, bolstering gold's appeal as a haven. 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. Another key event on traders' watchlist is Federal Reserve Chairman Jerome Powell's speech in New York later Tuesday.

    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 - boosting net long positions in U.S. gold futures and options. ETFs backed by the precious metal rose for a ninth straight day Monday, to the highest since April 2013.

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    In addition to the Fed's stance on interest rates, the latest worsening of U.S.-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 U.S.-China trade talks and any deterioration into next week should shift us towards the resistance at $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 U.S. 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 U.S. 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 $1,439.21, the highest since May 2013, and traded at $1,430.07 at 11:16 a.m. in London. A gauge of the U.S. dollar hit a three-month low before rising to trade little changed.

    In other precious metals, silver fell 0.1%, platinum rose 0.1% and palladium fell 1.4%. The gold/silver ratio widened to about 93, the most since 1992.

    SOURCE: Bloomberg