MTS Help Center

Gold edged up to near its highest since June on Tuesday, as uncertainty over global growth that has hammered stocks puts the precious metal on course for its longest rally since 2011.

Tuesday would mark gold's eighth straight day of gains as investors seek safe havens in the face of instability in other financial markets, although liquidity was slow in Asia with China shut for a week-long Lunar New Year holiday.

If gold sustains its gains later on Tuesday, it would be its longest rally since an 11-day run in July 2011.

"While it's quite clear that one of the drivers here is a weaker U.S. dollar, it does appear that risk appetites are diminishing and that of course means more demand for gold," said Michael McCarthy, chief market strategist at CMC Markets in Sydney

"It's not impossible we could see another touch of $1,200, some consolidation and then potentially a move higher if current conditions prevail.".

Bullion gained 5 percent last week, its biggest such increase since July 2013, boosting gold bulls' expectations that the price can go higher as global headwinds could make it tough for the U.S. Federal Reserve to raise interest rates this year.

Underlining gold's rising draw, holdings in eight major gold exchange-traded funds (ETFs) rose to 43.3 million ounces on Friday, the highest since July 2015.

More significant was the rapid pace of inflows since the start of the year, having risen more than 8 percent and the biggest five-week surge since March 2011.

Gold is the best asset in the Bloomberg Commodity Index this year, rising 13 percent. The metal is also benefiting from losses in global equity markets. U.S. shares retreated on Monday, joining a tumble in European and emerging-market stocks.

“Gold’s on the move today,” Phil Streible, a senior market strategist at RJO Futures in Chicago, said in a telephone interview. “A sharp selloff in equities is further causing a flight to quality and it shows you China is a lot shakier than last week.”

A global slowdown has increased speculation that U.S. growth will cool enough to force Federal Reserve policy makers to wait longer before raising interest rates again. The prospect of delays sent the dollar lower and gave metals a boost as alternative investments. Bullion holdings in exchange-traded products have climbed for 15 consecutive days, the longest run since September 2012, according to data compiled by Bloomberg.

Global financial markets are caught in a slippery death spiral. They will cause a global recession that will spare nobody, say Citigroup analysts. (Source: “Citi: World economy trapped in ‘death spiral’,” CNBC, February 5, 2016.)

Citigroup’s Jonathan Stubbs says four trends are fueling pessimism in the global economy and the markets. These are the rising value of the U.S. dollar, low commodity prices, the weakening of trade and capital flows, and slower growth in emerging markets.

"We remain quite upbeat on gold's prospects over the short-term given the continued unease surrounding the global equity markets, the weaker dollar and gold's much stronger technical profile," INTL FCStone analyst Edward Meir said in a note.

The next stop for gold could be $1,205/$1,215 and further to $1,235, said Meir.

Goldman forecast that bullion will be at $1,100 in three months, $1,050 in six months and $1,000 in 12 months. The bank said a delay to higher U.S. borrowing costs was an upside risk to its forecasts, while China and Russia cutting bullion purchases would be a downside risk.

Investors have scaled back expectations for rate increases from the Fed this year as global equity markets have sunk, oil extended losses and China’s economy slowed. There’s now no chance of an increase next month, down from the 51 percent odds seen at the start of the year, according to data tracked by Bloomberg.

Goldman’s outlook for bullion at $1,000 an ounce in 12 months’ time tallies with the projection for that time frame given in the bank’s report on Dec. 21, when analysts maintained their bearish view.

Reference: Reuters, Bloomberg, Profitconfidential