Gold gains on worries about global economic downturn

Bengaluru — Gold prices gained on Wednesday as investor concerns grew about a global economic downturn driven by US-China trade tensions, which also sent US treasury yields lower.

Spot gold rose 0.4% to $1,283.94 an ounce by 12.49pm GMT, while US gold futures were up 0.5% at $1,283.50 an ounce.

“The 10-year US treasury yields have dropped to their lowest in [about] a year and a half right now, and that seems to be a function of the fears of a slowdown in the US economy and the trade war,” Mitsubishi analyst Jonathan Butler said.

Global equity markets sank and US treasury yields dipped to their lowest since September 2017 as investor sentiment soured over growing global growth worries.

Lower bond yields reduce the opportunity cost of holding non-interest bearing gold.

Adding to the global anxiety, China’s Communist Party newspaper warned on Wednesday that Beijing was ready to use rare earths to strike back at the US in the drawn-out dispute.

This comes two days after US President Donald Trump said Washington was not yet prepared to strike a deal.

Gold also held up well against a relatively stronger dollar, which has been competing with bullion as the investment of choice to hedge against the trade tensions, with the US currency holding near a one-week high.

The dollar is repeating a trend seen last year, when it emerged as the preferred hedge over bullion from the trade concerns between the world’s two biggest economies.

“Wider global interest rate differentials between the dollar and G6 currencies have further bolstered the dollar strength while extending marked pressure on gold in lieu of its status as a non-interest bearing asset,” Phillip Futures said.

Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund (ETF), which is a gauge of investor interest in the metal, fell 0.2% to 737.34 tonnes on Tuesday from Friday.

Among other precious metals, silver gained 0.8% to $14.45 an ounce, while palladium rose 0.6% to $1,344.60 an ounce. Platinum fell 0.2% to $793.94 an ounce, after earlier falling to its lowest since February 15 at $787. 

Reuters