Gold price Gains as Global Markets Plunge
London (Jan 20) Gold prices rose on the London spot market Wednesday, as plummeting global markets pushed investors into safe haven assets and the metal received support from a weaker dollar.
Spot gold was up 0.7% at $1,094.50 a troy ounce in morning European trade, having hit a three-day high earlier in the session at $1,096.99 an ounce. It wasn’t good news for all precious metals, though, as platinum hit a seven-year low for the third day in a row.
The gains came as global stocks resumed their steep selloff and oil prices sank to a 12-year low amid resurgent concerns about global growth. The Stoxx Europe 600 was down 3% midmorning, bringing losses for the year close to 12%. That benefited all safe haven assets, with Treasury’s and the yen all gaining with gold on Monday.
Such haven buying has helped gold to gain $17, or 3.25%, an ounce since the start of the year.
The WSJ Dollar Index was also last down 0.10% at 91.41. As gold is priced in dollars, it becomes cheaper to buy when the greenback softens.
The market is expecting a further boost to this metal from the current rout, given it will likely push the next U.S. interest rate increase further into the future.
“It now looks as likely as not that we’ll see the first rise in December 2016,” said Jonathan Butler, precious metals strategist at Mitsubishi Corp.
U.S. rate increases make gold less competitive with interest bearing securities like Treasurys while also boosting the dollar.
Spot platinum was down 0.7% at $819.43 an ounce, having sunk to $817.06 an ounce during trading. Investors are junking some of their holdings in the face of Chinese demand worries, the declining diesel-engine share of the car market and as the weak South African rand is encouraging supply onto the market.
The metal is predominantly used in the manufacture of car autocatalytic converters, which reduce toxic emissions.
With 2016 car sales growth expected to be strong and mine output ultimately falling, though, “this suggests the price should rally, unless investors continue to lose faith in the long-term story,” said Macquarie in a note. “We see the problems but believe they are overstated.”
Among the other precious metals, spot silver was up 0.6% at $14.090 an ounce and spot palladium was down 0.8% at $489.36 an ounce.