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Gold surges as turmoil skewers rate outlook

Jan 26 2016 07:39
Ranjeetha Pakiam

Singapore - Gold surged to the highest level in more than two months as demand for haven assets strengthened due to a global retreat in stocks and a renewed slump in oil, with investors scaling back bets about the pace and timing of US interest rate increases.

Bullion for immediate delivery gained as much as 0.5% to $1 113.89 an ounce, the highest price since November 4, and was at $1 113.54 at 12:15 in Singapore, according to Bloomberg generic pricing. The metal is up 4.9% this year as the MSCI Asia Pacific Index fell 10%, with a decline in stocks on Tuesday snapping a two-day rally.

Gold has re-established its credentials in the opening month of 2016 as the commodity that can outperform when aversion to risk increases. Investors have been turning to safer assets amid tumbling stocks, weaker oil prices and concern that China’s currency may extend declines. The turmoil in financial markets has prompted investors to reduce bets that US interest rates will increase in March, adding to bullion’s allure.

“There’s risk in the equity markets, so that’s why we have seen this increase in safe-haven demand,” said Helen Lau, an analyst at Argonaut Securities (Asia). “The US may withhold raising interest rates, so that’s also warming up the sentiment toward gold. The funds are flowing into ETFs, so this will drive up the investment demand.”

Rates bets

The odds of a rise in US borrowing costs in March have been cut to 25% from 51% at the start of the year, and the chance of a raise in June is now 44% from 75%, according to bets tracked by Bloomberg. While Federal Reserve policy makers gather on January 26 to 27, analysts see no chance of an increase at their first meeting of 2016.

Bullion may rally to as much as $1 400 an ounce, George Gero, the vice president of global futures at RBC Capital Markets, told Bloomberg in an interview. Prices haven’t traded at that level since September 2013.

Holdings in exchange-traded funds backed by gold rose 0.5 metric tons to 1 503.5 tons as of Monday, data compiled by Bloomberg show. Assets climbed for a sixth day and are 2.9% higher since the end of 2015.

Spot silver rose 0.4%, platinum added 0.2% and palladium advanced 0.5%.

READ: Brace for 50bp rate hike, warn economists

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interest rates  |  us economy

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