Gold scores strongest streak of gains in 2 years

January 8, 2020

New York (Jan 8)  Gold futures marked a 10th straight climb on Tuesday, the longest streak of gains in two years, with prices at their highest finish since 2013.

Haven demand for the metal boosted prices as investors weighed the prospects for further escalation in Mideast tensions.

“The latest spike in gold prices is being driven by the sudden escalation in US-Iran tensions, which is hitting world stock markets and leading investors to seek shelter,” said Adrian Ash, director of research at BullionVault.

However, “underlying demand for gold had already turned higher in 2019, most especially among investors in the Eurozone, where negative interest rates are forcing savers and investors to find better homes for their money than bank accounts or debt investments,” he said, as he presented data showing that BullionVault clients grew their holdings by 0.7% in December to a new record of 39.3 metric tons.

On Tuesday, February gold GCG20, -0.25%  on Comex added $5.50, or about 0.4%, to settle at $1,574.30 an ounce, after settling up 1.1% on Monday. Prices for the most-active contract marked the highest settlement April 9, 2013 for a second straight session.

Gold stretched its streak of consecutive gains to 10 sessions, representing its longest period of gains since the 11 days of wins booked from December 2017 to January 2018, according to Dow Jones Market Data.

Gold and haven assets have received bids after the killing of a top Iranian military commander, Qassem Soleimani, last week, which has reverberated through financial markets, momentarily upending appetite for assets considered risky and boosting traditional haven assets like gold.

March silver SIH20, -0.78%  picked up 21.4 cents, or 1.2%, to settle at $18.393 an ounce, after a 0.2% gain on Monday.

Read: Why geopolitical events aren’t a good reason to buy gold

“I do not believe gold’s spike on Monday was a one-time event,” Michael Armbruster, managing partner at Altavest told MarketWatch.

“Gold has already been in rally mode for two weeks prior to the escalation of tensions between the U.S. and Iran,” he said. “The bottom line for gold, despite the stock market’s melt-up (or because of it!), is that gold’s rally suggests that investors are looking to diversify away from risk assets.”

“Bullish factors include: the U.S. federal budget deficit is out of control, the [Federal Reserve’s] rapid balance sheet expansion and central banks are buying gold,” he added. “We think a rally to the $1,650 to $1,750 range is likely in the months ahead.”

Still, precious metals were facing some headwinds from strength in the U.S. dollar, which can influence trade in dollar-pegged commodities.

The U.S. ICE Dollar Index DXY, +0.21%, a measure of the buck against a half-dozen currencies, was up 0.4% at 97.016, erasing its decline in the previous session.

Investors also said technical factors could determine the next phase for gold, which already has enjoyed a strong move, even before the Middle East tensions flared up.

“Although prices have strong bullish momentum, further upside will depend on how prices react around $1555,” said FXTM analysts.

“The precious metal should trend higher towards $1600 as long as $1555 proves to be reliable support. Alternatively, a breakdown below this level may open the door towards $1535,” the researchers wrote.

Among other metals, March copper added 0.1% to $2.7935 a pound. April platinum rose 0.6% to $971.60 an ounce, while March palladium rose by 1.2% to $2,014.30 an ounce, reaching a fresh record.

“There just is very little supply response possible to fill in the deficit” for palladium supplies, R. Michael Jones, chief executive officer of Platinum Group Metals Ltd. PLG, +2.29%  told MarketWatch in recent comments. Norilsk Nickel in Russia, which produces around 40% of the world’s palladium supply, “has promised growth in supply, but this is several years out,” he said.

The pattern for palladium may repeat in other metals, as we’ve “seen a dearth of capital for mining in the past 6 years,” he said. Claims of China slowing down have been “over done and caused investors to move away from commodities. Eventually, the supply cupboard gets low and lead times to find and develop mines are about 10 years.”


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