Gold crosses $1,300 threshold as rates outlook undermines dollar

London: After three years of being scorned, gold is making a powerful comeback. Prices briefly pushed above $1,300 an ounce on speculation that the US central bank will be slow to tighten policy further, bolstering the metal’s appeal as the dollar sagged.

Bullion for immediate delivery climbed 0.4 per cent to $1,296.20 an ounce at 10:17am in London. On Monday, prices touched $1,303.82, according to Bloomberg generic pricing. The metal has gained 22 per cent this year, rising to the highest since January 2015, as a gauge of the dollar lost 6.3 per cent.

Investors piled back into bullion in 2016 after prices sank for three straight years as risks to the global economy prompted the Federal Reserve to signal it will take a slower approach to rate increases. While the metal’s appeal has also been boosted by the spread of negative interest rates in Europe and Japan, gold’s latest push higher came after the Bank of Japan refrained from adding stimulus last week, which hurt the dollar. The spike above $1,300 on Monday came as many financial markets in Asia and Europe were closed.

The rally has been spurred by the dollar falling and high inflows into exchange traded products, Commerzbank AG said Tuesday. “The gold price no doubt also found support from the continuing loose monetary policy pursued by the major central banks. In all likelihood, interest rates in the US will remain at their current low level for some time yet.”

Investors have poured funds into bullion-backed exchange-traded products, reversing a tide that saw assets shrink for three years. Holdings rose 1.2 per cent to 1,780.7 tons on Monday, the biggest increase since February, according to data compiled by Bloomberg.

Some forecasters have said the rally may last a while longer. Gold may rise to as much as $1,400, BNP Paribas SA said last month. ABN Amro Group NV — which began the year as a gold bear only to reverse its outlook — in March boosted its year-end target to $1,370 on expectations for low rates.

The advance has fuelled a rally in mining stocks. Barrick Gold Corp and AngloGold Ashanti Ltd have more than doubled this year.

Rates outlook

The likelihood of higher US rates by year-end is 59.8 per cent, down from 93.3 per cent in January, futures data show. The future so-called new normal for interest rates might be lower than the Fed’s median estimate, San Francisco Federal Reserve President John Williams said at a conference on Monday.

The US expanded just 0.5 per cent in the first quarter, the slowest pace in two years. This week, the release of monthly employment figures will provide clues on the strength of the world’s biggest economy and help shape the outlook for US monetary policy.

Goldman Sachs Group Inc is among forecasters that have stuck to a bearish outlook, at least as of April 22. The New York-based bank said in a note that day it still expects a further strengthening of the US labour market will force the Fed to hike, hurting gold. It saw prices at $1,100 in three months’ time.