Friday 28 July 2017

Gold futures rise to record levels on fears for dollar

Gold futures rose to a record for the third straight session on speculation that US government programmes to stimulate the economy will erode the value of the dollar and boost demand for the precious metal as an alternative investment.

The dollar has approached a five-week low against the euro. The US Federal Reserve, meanwhile, may say at a meeting today that it's considering more measures to keep borrowing costs low.

Confidence among homebuilders in September held at the weakest level in more than a year, indicating the US housing market remains depressed.

"The longer we continue with no real change in the US economic situation, the more likely we'll get another round of quantitative easing," said Frank McGhee, the head dealer at Integrated Brokerage Services in Chicago. "The underlying loose monetary policies will erode the value of the currency against gold."

Gold futures for December delivery rose $5.50, or 0.5pc, to $1,283 an ounce in early trading on the Comex in New York. Earlier, the price reached a record $1,284.90.

Holdings in gold-backed exchange-traded products climbed to an all-time high on September 17.

The Fed has kept the benchmark interest rate at between zero and 0.25pc since December 2008 and bought back Treasuries to revive the economy.

Before yesterday, gold climbed 17pc this year, outperforming global equities, Treasuries and most industrial metals. Futures headed for the 10th straight annual gain.

The Fed is likely to affirm its pledge to keep interest rates low for an "extended period" and maintain the floor on its holdings of securities, according to economists surveyed by Bloomberg.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment dropped to a one-year low of 66.6, figures showed on September 17.

"The only thing that can bring gold down is a real improvement in the economy," said Matthew Zeman, a metal trader at LaSalle Futures Group in Chicago. "People will dump it for higher-risk assets."

Gold gained this year amid tame US inflation. The metal is traditionally bought as a hedge against rising consumer prices. But inflation expectations, based on the 10-year US Treasury breakeven rate, have fallen to 1.79pc from 2.21pc six months ago.

"I'm a weak long at these levels," McGhee of Integrated Brokerage said.

"Gold is at the top of a very long run and susceptible to a correction." (Bloomberg)

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