Gold prices climbed to a fresh six-year high Monday, while the U.S. dollar extended declines and some European government bonds hit new all-time lows, as investors retreated into risk-free assets ahead of this weekend’s G20 Summit in Japan and simmering military tensions in the Gulf Region.
Spot gold prices hit $1,438.63 per ounce in overnight trading, the highest since May 2013, before paring that advance to around $1,435.45 during European hours as the U.S. dollar index, a measure of the greenback’s strength against a basket of six global currencies, traded at a fresh three-month low of 95.98.
“Gold’s lure has only increased amid intensified fears over the global growth outlook that has been severely dampened by US-China trade tensions that have lasted for nearly a year,” said FXTM market analyst Han Tan. “The now enlarged scope of the US-China conflict, expanding beyond trade to include the tech sector, along with the displays of brinksmanship that have unfolded in recent weeks, creates a narrative that should keep Gold’s allure intact.”
Around 19 million ounces of gold have been hovered-up by futures traders and ETFs over the past month, according to Saxo Bank commodity strategist Ole Hansen, who also noted that the The gold/silver ratio, a measure of the amount of silver needed to buy an ounce of bullion, traded at a 1993 low of 92.5 during the overnight session and platinum’s discount hit a record low of $620 per ounce.
The dollar index, which slipped into negative territory for the year this week as investors double-down on near-term Fed rate hikes, is likely the biggest driver of gold’s recent rally, but record-low bond yields are playing an important role, as well.
Benchmark 10-year German bund yields hit a fresh all-time trough of -0.33% Tuesday, pulling just over $13 trillion in global government bonds are trading with a negative interest rate, according to Bloomberg data, the largest tally on record. And with the CME Group’s FedWatch tool pricing in a 100% chance of a July rate hike, and a near 74% chance of two more cuts between now and the end of the year, the effective Fed Funds rate could easily turn negative before the autumn, taking investors out of the dollar and into alternative assets.
The SPDR Gold Trust ETF (GLD) , the market’s largest, has risen more than 10.4% over the past month, compared to a 4.22% advance for the S&P 500, while Barrick Gold Corp. (GOLD) has surged 52.3% while rival and erstwhile merger partner Newmont Mining Corp. (NEM) has risen 20.5%