Gold prices nudge higher amid global market turmoil
Gold prices were higher on the London spot market on Thursday, as global market and geopolitical turmoil triggered further safe-haven buying.
The precious metal was one of the few bright spots on a day when concerns over the Chinese economy pummeled equity markets and commodities around the world.
Spot gold was trading up 0.3% at $1,096 a troy ounce in morning European trade, having traded above the $1,100-an-ounce mark at $1,102.80 an ounce for the first time in nine weeks.
The gains came as China’s stock market tumbled on a currency devaluation that raised further questions about the world’s No. 2 economy and fueled concerns over capital flight.
Adding to this, tensions in the Middle East and uncertainty surrounding North Korea have prompted investors to buy the metal.
Gold is traditionally seen as a safe-haven asset, as it tends to maintain a stable level of value, and investors often buy gold during times of heightened social, political or economic uncertainty.
The precious metal is 3.4% higher so far this year, against a 9.8% drop for Brent crude and a 6.2% fall for the Stoxx Europe 600 , a broad measure of European equity markets, while the S&P 500 is down 2.6%.
Still, some analyst expect the safe-haven boost to be short-lived, pointing out that more recently gains on the flight to safety have been brief. Last year, gains in gold that came out of civil war in Ukraine and last August’s China-induced turmoil were shallow and lasted for only days.
“You tend to find geopolitical issues tend to only be short-term drivers or supporters for gold,” said David Wilson, director of metals research and strategy at Citigroup Inc.
But the current turmoil could benefit gold in another way, if it slows down the pace of U.S. interest rate rises. U.S. monetary policy dominated trading in gold last year, given higher rates boost the dollar and make this metal less competitive against interest-bearing investments.
“The longer the turmoil on the financial markets continues, the more market participants are likely to have doubts about the Fed rate-hike cycle being continued in the near future,” Commerzbank said in a research note. “We believe this would be positive for gold because the opportunity costs of holding gold would remain low in this scenario.”
Among other precious metals, palladium fell to a more than five-year low, as a metal often used in industry was dragged lower by the Chinese concerns.
Spot palladium was trading down 2.2% at $495.10 an ounce. Silver was trading 0.07% lower at $13.99 an ounce and platinum was down 1.56% at $867.75.