Gold prices firmed on Wednesday as economic uncertainties stemming from the coronavirus pandemic linger. However, bullion’s gains were limited as the dollar also received a lift from safe-haven inflows driven by worries about a delay in the development of a covid-19 vaccine.
Spot gold was up 0.5% at $1,941.66 per ounce by noon EDT, shaking off initial declines. US gold futures advanced 0.4%, trading slightly above $1,950 an ounce.
Meanwhile the US dollar, also seen as a safe haven asset was at a near one-month high against rivals, making gold expensive for holders of other currencies.
However, gold’s fundamentals are “still rock solid”, according to Afshin Nabavi, senior vice president at precious metals trader MKS SA. “Given the strength in the dollar, gold should have been down much more,” he added.
Global trials of AstraZeneca’s experimental covid-19 vaccine were paused due to an unexplained illness in a study participant, keeping sentiment fragile in wider markets following the recent tech-driven sell-off on Wall Street.
News of the delay may be indirectly supportive for gold as it could spell a prolonged economic slowdown and further expectations of fiscal stimulus, Saxo Bank analyst Ole Hansen told Reuters.
Investors now await the outcome of the European Central Bank’s policy meeting, which is set to take place on Thursday.
“European countries do need some kind of economic help from the central bank, which would make the euro a little weaker compared to the dollar,” independent analyst Ross Norman said.
“But given the lingering uncertainties, that won’t cause much damage to gold’s shine.”
The global pandemic has forced major central banks around the world to provide massive stimulus, propelling gold’s value by about 28% so far this year as it is widely considered a hedge against potential currency debasement and inflation.
Gold is also likely to receive an added boost as uncertainty over the upcoming US election reinvigorates demand for the precious metal as a haven, according to Peter Grosskopf of Sprott Inc., who leads the Canadian-based asset managing firm and is a renowned gold bull.
Bullion, which reached a record high last month, has stumbled in recent weeks, hampered by signs of stabilizing economies and a surge in equities. However, Grosskopf believes the election may renew investor focus on inflation, government debt and the need for stimulus.
“Gold could get an added lift from a win by Democratic presidential candidate Joe Biden, who is seen as likely to raise taxes and increase spending,” he says.
The lead-up to the election “will accelerate the interest in gold,” the Sprott chief executive told Bloomberg by phone.
“The world will become a lot more uncertain again and people will go back to being nervous. It’s a pendulum now that’s swinging. It’s got a lot further to move.”
Investors’ appetite for the precious metal remains high heading into the fall season, with gold-backed exchange-traded funds (ETFs) and similar products recording their ninth consecutive month of inflows in the month of August, albeit at their slowest pace for this year.
Based on latest data compiled by the World Gold Council (WGC), these gold instruments added a total of 39 tonnes during the month – equivalent to $2.1 billion or 0.9% of assets under management (AUM), as the price of gold reached a record high early in August.
According to the Council, investor positioning in the gold market consolidated later in the month as equities continued to increase to new all-time highs, interest rates rose and yield curves steepened, and the price of gold ended the month slightly lower for the first time in five months.
Year-to-date global net inflows of 938 tonnes ($51.2 billion) have taken collective gold ETF holdings to a fresh new all-time high of 3,824 tonnes ($241 billion), surpassing the largest annual gain of 646 tonnes seen in 2009.
In terms of long-term trends, the WGC points out that over the first eight months of the year, global ETF holdings (in tonnes) have increased by 38%, with collective AUM having grown by 70% until August.
The WGC further adds that holdings in both tonnage and value terms continue to reach new highs.
“August data shows us that increased investor interest alongside new fund launches in Asian countries provides significant support for the record highs gold is reaching this year in terms of both tonnage and value terms, especially as consumer demand weakens,” Adam Perlaky of the WGC explains.
“Last month’s Fed announcement suggesting rates may remain near zero for the foreseeable future, coupled with real rates in most developed countries hovering at negatives, extends an environment where the opportunity cost of gold can remain low for investors.”
(With files from Bloomberg and Reuters)