Gold investors are bracing for increased market anxiety as the worst selloff in oil since 1991 spurred a massive slump in equities.
Bullion jumped above $1,700 an ounce when markets opened in Asia, before pulling back, as money managers cashed in gains to cover losses in other assets. A 30-day measure of expectations for price swings for the metal climbed to the highest since December 2015.
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While gold is viewed as a classic haven popular during times of turmoil, it’s been a bumpy move up in the past month. While the need to raise cash has prompted some investors to sell the metal, increasing bets the Federal Reserve will cut borrowing costs are boosting the appeal of the non-interest bearing asset.
“In terms of volatility, it is normal especially when the market is expecting the March Fed meeting to be a live one,” Naeem Aslam, chief market analyst at Ava Trade, said by email Monday. “The fact that the price has broken the 1700 mark, it leads us to believe that there are strong chances for the price to cross this level again.”
Gold futures jumped as much as 1.9% to $1,704.30 an ounce, the highest since December 2012. The metal gave up most of the rally to trade at $1,672.60 by 10:25 a.m. on the Comex in New York. Prices have jumped as much as 12% this year to a seven-year high.
Other precious metals fared worse than gold.
- Silver fell 2.7% to $16.795 an ounce on the Comex
- Platinum lost 3.1% and palladium sank 2.6% on the New York Mercantile Exchange
The consensus is that gold will keep climbing. UBS Group AG’s wealth-management unit predicts prices could rally toward $1,800 within weeks, while Citigroup Inc. sees the metal surging to $2,000 by the end of 2021.
With back-to-back hits from the virus-driven slowdown and tanking crude, all eyes are on what the European Central Bank and Federal Reserve will do to defend inflation expectations, said Wayne Gordon, executive director for commodities and foreign exchange at UBS.
The clearest sign that investors are still bullish: gold-backed exchange-traded funds are continuing to attract cash. Bullion funds increased last week by the most since September, according to data compiled by Bloomberg.
Markets are concerned that “we could see a more ugly situation before things get better, which of course is good news for gold,” said Michael McCarthy, chief market strategist at CMC Markets in Sydney.
–With assistance from Ranjeetha Pakiam.