Investors drive price of gold higher

PRECIOUS METAL:GOLD HAS soared higher and the Swiss franc strengthened after agitated investors shunned equities in favour of so-called safe havens.

As fears mounted of stalling global recovery the precious metal rose 1.5 per cent yesterday, setting a record nominal high for a second consecutive day and heading for its biggest one-week gain in more than two years.

After rallying about 3 per cent to reach $1,877 an ounce earlier in the session, bullion sharply pared initial gains as Wall Street found its footing.

“Right now, gold is inversely correlated with fear and nothing else. When stocks are down, gold’s up,” said Frank McGhee, head precious metals trader at Integrated Brokerage Services.

“If we see the stock markets rally, I would not be surprised to see profit-taking starting to set in.”

Spot gold was up 1.4 per cent at $1,849.49 an ounce by lunchtime in the US. It is on track for its biggest one-month rise in nearly 12 years in August and up 30 per cent so far this year.

Dublin bullion dealer GoldCore said that markets continue to assess the ramifications of Venezuela’s decision to repatriate their gold reserves (which are large in tonnage terms, but small in dollar terms) from London to Caracas.

“The concern is that other central banks concerned about dollar and currency debasement and expropriation of their gold reserves by embattled large debtor sovereign nations may follow suit,” said the Dublin bullion dealer.

“A short squeeze is quite likely given the scale of global investor and central bank demand.”

The Swiss franc firmed up, although gains were capped by speculation that authorities in Switzerland will step in again to rein in the currency.

US treasury yields inched up from a low of 1.97 per cent on Thursday as some investors took profits.

Yields have dropped almost a full percentage point on the 10-year note in August as disappointing economic data, the Federal Reserve’s low interest rate policy and jitters over rising bank funding costs drove investors to safe-haven bonds.

“At the moment the market is just looking for relative safe havens,” said Mitsui Precious Metals analyst David Jollie.

“You can see that in the sell-offs across equity markets overnight. The strength of gold is the other side of the coin from that,” he added. – (Additional reporting Reuters)