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Gold’s best run since 2011 exposes `global complacency’ on rates

Last year, the commodity climbed 14 per cent, the best performance in seven years

Gulf News

London

Gold is starting the new year on the front foot. Bullion advanced for an eighth session to head for the longest stretch of gains since mid-2011, building on an annual surge.

Bullion for immediate delivery advanced 0.9 per cent to $1,315.08 an ounce at 2:15pm in New York, according to Bloomberg generic pricing. Last year, the commodity climbed 14 per cent, the best performance in seven years. The Bloomberg Dollar Spot Index lost 8.5 per cent in 2017.

Gold’s strong run in 2017 came even as US stock markets surged to records and the Federal Reserve increased interest rates three times amid signs of an improving economy. Fed policymakers are projecting another three hikes in 2018, while other central banks around the world have also shifted toward a tighter monetary stance, with the European Central Bank planning to halve its asset purchases starting this month. Higher rates can make non-interest-bearing assets such as gold less competitive.

“As global complacency over the trajectory of US rates continues to be astoundingly low, precious metals in general should continue to benefit,” Jeffrey Halley, senior market analyst at Oanda Corp. in Singapore, said in a note. “The adage that the market can stay irrational longer than you can stay solvent appears to be alive and well in the gold market at the moment.”

Bullion’s 14-day relative strength index was at 73.4, up from 69.1 on Friday and above the level of 70 that can indicate that an asset may be set for a decline. “The relative strength index is now at very overbought levels,” Halley said.

Among releases that investors will scrutinise this week for clues on the direction of monetary policy are minutes of the Federal Open Market Committee’s December meeting, due on January 3. US nonfarm payrolls and average hourly earnings data will be issued on January 5.

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