Gold Souk
Gold souk. For illustrative purposes only. Image Credit: GUlf News archives

London: Gold prices are hovering near a three-month high, as global slowdown worries driven by trade conflicts amid expectations of a US interest rate cut stoked investors towards the safe-haven bullion. Spot gold was at $1,323.81 per ounce early Tuesday after touching its highest since February 27 at $1,327.90 in the previous session.

US gold futures were steady at $1,328.30 an ounce.

“Weak sentiment around the breakdown in US-China trade relationship has seen investors seek safe-haven assets,” ANZ analyst Daniel Hynes said.

Also, “weakness in equity markets and clearly the indications of a rate cut in the US has seen gold come to fore, which has driven investors back into to the gold market.”

“We expect gold to trade in a higher range during June as we think the turbulence in US equity markets and the downward push in yields still has room to run,” INTL FCStone analyst Edward Meir said in a note. “Should the Fed signal a rate cut at some point as well, we could see the momentum gain more traction.”

A gloomy economic outlook prompted traders to increase bets that the U.S. Federal Reserve will cut interest rates sooner than expected. Lower interest rates would support gold because they reduce the opportunity cost of holding non-yielding bullion.

Exchange traded funds rake in the gold

The biggest bullion-backed exchange-traded fund in the world is suddenly getting a lot of love. Holdings in SPDR Gold Shares surged by the most in almost three years as the US-China trade war, signs of a slowdown, and speculation the Federal Reserve will cut rates combined to fan demand.

Assets in the SPDR ETF jumped 16.44 metric tonnes on Monday to post the biggest gain since July 2016, while a tally of holdings in all ETFs saw the biggest increase this year. The swing toward the traditional haven came as gold prices surged above $1,300 an ounce to hit the highest since February.

Gold’s had a lackluster year so far even as trade war concerns flared, with Fed policymakers signalling rates were on hold and the dollar gaining ground in the four months to May.

“Gold is once again trying to reclaim its role as a safe haven amid growing trade tensions and consequent risks to growth,” Joni Teves, a strategist at UBS Group AG, said in a note on Monday. The price “looks like it is getting comfortable above $1,300, with aspirations of testing this year’s highs.”