Gold Snaps Back to Bull Market as Prices Surge on Haven Demand
Gold cruised to a bull market, heedless of rebounding stock markets, as traders expect central banks to curb yields on other investments in an effort to spur economic growth.
The metal is up more than 20 percent since a December low, the common definition of a bull market, outpacing all major assets. Gold was little changed Friday as investors weighed a surge in U.S. payrolls against an unexpected decline in wages. Prices rose 0.1 percent to $1,265.69 an ounce at 9 a.m., according to Bloomberg generic pricing.
“The rally has mainly been on the repricing and changing expectations regarding central bank policy,” Jens Pedersen, a Danske Bank A/S analyst in Copenhagen, said by phone. The European Central Bank and Bank of Japan may ease policy further, while the U.S. Federal Reserve could postpone any further rate increases, he said.
Looser policy and the lower rates on securities that tend to follow add to the appeal of gold, which yields nothing. The metal is also a haven in times of crisis and slow growth.
“Although gold is very much driven by Fed policy, the impact of ECB policy decisions may become increasingly relevant for gold price action, as concerns about negative interest rates gain traction,” Joni Teves, a strategist at UBS Group AG, said in a note on Friday. “We think negative interest rates should be positive for gold.”
ETF Buying
Bullish sentiment in gold is reflected in exchange-traded funds. Investors raised holdings in gold-backed ETFs by 259 metric tons so far this quarter, which would be the biggest quarterly gain since June 2010. Holdings are rising after three straight years of withdrawals.
Growth in U.S. service industries slowed for a fourth month in February, prompting the first job cuts in two years, according to a report by the Institute for Supply Management. A report Friday showed U.S. employers added more workers in February than projected but wages unexpectedly declined, dashing hopes that reduced slack in the labor market was starting to benefit all Americans.
“There’s definitely a fear factor out there,” said John Meyer, an analyst at SP Angel Corporate Finance LLP in London. “Investors are getting back into gold.”
Open interest, a tally of outstanding contracts in Comex futures, rose to the highest since 2012. That suggests investors increased bullish positions and prices may rise, said Tai Wong, director of commodity products trading at BMO Capital Markets Corp. in New York.
Gold futures for April delivery climbed 0.6 percent to $1,266 an ounce on the Comex in New York.
http://www.bloomberg.com/news/articles/2016-03-03/gold-snaps-back-to-bull-market-as-prices-surge-on-haven-demand
