Gold’s safe haven status gathers momentum when market volatility runs high. And while Warren Buffett sees little to no value in the yellow metal and keeps well away, there’s something that appeals to a select investor. The yo-yo nature of the price points to instability within the global economic framework but it’s the relation to currencies that really controls its movement. One theory on the present rally is that China is shoring up gold reserves in a bid to stabilize the Yuan. The other points to the US Federal Reserve, as the possibility of an interest rate hike in September has narrowed, with traders seeing a 36% chance of a hike. But the rally may be cut short if the United States or China move the other way. – Stuart Lowman
by Ranjeetha Pakiam
(Bloomberg) – Gold rallied to the highest level in a month as bets eased on a U.S. interest rate increase in September after Federal Reserve officials said they needed more evidence of a strengthening economy.
Gold for immediate delivery climbed as much as 0.7 percent to $1,142.25 an ounce, the highest level since July 17, and traded at $1,138.28 at2:35 p.m. in Singapore after surging 1.5 percent on Wednesday, according to Bloomberg generic pricing. That was the biggest increase since May 13.
Fed officials said they want more indications that the labor market is healing and that inflation is moving toward their goal, according to minutes of last month’s Fed meeting released Wednesday. The prospect of higher rates makes gold less attractive because the metal doesn’t pay interest.
“The gold market is being viewed as very cheap,” Jonathan Barratt, chief investment officer at Ayers Alliance Securities in Sydney, said by phone. “We’ve got physical demand extremely high. The physical demand that we’ve seen and the premiums in gold moving higher are starting to make a few heads turn in terms of gold as an investment.”
Bullion capped the first weekly gain since mid-June last week after China unexpectedly devalued its currency, shaking up markets and boosting the appeal of haven assets. Global stocks fell Wednesday amid growth concerns, while U.S. data showing consumer prices rose at a slower pace in July cast doubt on how quickly inflation will return to the Fed’s goal.
Fed Lift
“Gold is getting supported,” Dominic Schnider, head of commodities and Asia-Pacific foreign exchange at UBS Group AG’s wealth-management unit in Hong Kong, said by phone. “With the uncertainty that the Fed might not hike, you get that lift. We are of the opinion that the Fed will hike, so we see this bounce as very short-lived and it’s going to come under pressure again.”
Many central banks remain exposed to a small number of key reserve currencies and look to gold as a hedge against volatile currency movements, according to the World Gold Council. China increased its gold reserves by 1.1 percent in July, according to data released last Friday by the central bank. Kazakhstan increased its gold reserves for a 33rd month in June and Russia also added more bullion, according to the International Monetary Fund.
Weakening Currencies
“It’s an attempt to shore up their reserves in a bid to stabilize their currencies,” Howie Lee, an investment analyst at Phillip Futures Pte in Singapore, said in an e-mail, referring to countries with weakening currencies. “Capital has left their shores faster than the race cars in ‘Fast & Furious,’ and there is an overhanging concern that higher rates in the U.S. may spark further local asset selling. This stock-up in gold is a recurring theme and likely to continue.”
Gold futures for December delivery climbed as much as 1.2 percent to $1,141.80 an ounce, the highest since July 17, after advancing 1 percent on Wednesday. Bullion of 99.99 percent purity advanced 1.4 percent to 235 yuan a gram ($1,142.75 an ounce) on the Shanghai Gold Exchange, up for a fourth day, and heading for the highest close since June 29.
Traders are pricing in a 36 percent probability that the Fed will raises rates at its September meeting, compared with 54 percent on Aug. 7, according to data compiled by Bloomberg. The Fed’s benchmark rate has been near zero since 2008.
Holdings in bullion-backed exchange-traded products expanded 0.2 percent on Wednesday, and remain near the lowest since 2009, according to data compiled by Bloomberg.
Silver for immediate delivery added 0.3 percent to $15.3748 an ounce after surging 3 percent on Wednesday. Platinum climbed 0.5 percent to $1,020.28 an ounce, after a 2 percent jump on Aug. 19. Palladium rose 0.5 percent to $617.34 an ounce after settling 2.7 percent higher on Wednesday.
