Dubai gold futures trading surges in June as investors seek haven assets

Expectations of lower Fed rates and heightened geopolitical concerns boosted gold demand

A worker carries a 28 kilogram gold bar after casting and cleaning in the foundry at a gold mine in Westonaria, South Africa. Photographer: Waldo Swiegers/Bloomberg
Beta V.1.0 - Powered by automated translation

Dubai's gold futures trading in June surged to the highest levels since the last quarter of 2016 as expectations of a looser monetary stance by the US Federal Reserve and heightened US-Iran tensions spurred demand for the metal as a haven.

The gold futures' average daily volumes jumped 225 per cent in June compared to the same period last year, the Dubai Gold & Commodities Exchange (DGCX) said on Sunday. The bourse traded more than 1.73 million contracts during June, with gold futures recording their best month since November 2016.

"Gold reasserted its position in June as the safe-haven asset of choice, as investors worldwide flocked to the precious metal on the back of fresh speculation around lower Fed rates, a weak US dollar, and heightened geopolitical tensions between the US and Iran," said Les Male, chief executive of DGCX.

Through 2018 the Fed adopted a hawkish stance towards rates and this lent a lot of support to the US dollar and kept gold prices in check, according to Guarav Kashyap, head of futures at EGM Futures.

However, he said, through the first two quarters of 2019, the Fed seems to have "retraced from its hawkish undertones and has adopted a more dovish stance towards futures US rate hikes in 2019".

"In 2018 they projected two or more rate hikes for 2019 and, six months on, markets are now pricing no rate hike for 2019, with some even expected a rate cut on 2019," he said.

Mr Kashyap said that reversal in sentiment has been the key driver in higher gold prices and he believes this will be the key theme to watch out for in determining future gold prices.

"I expect gold prices to continue to trade between $1,400 and $1,440. Better than expected US data will see corrections in gold prices on an intraday basis and vice versa."

Gold prices rallied last week, headed for their best month in three years, as uncertainty loomed over whether the trade talks between China and the United States would yield any progress in ending a year-long trade dispute.

The trade tensions between the world's two biggest economies also weighed on equity markets on Friday, boosting the appeal of gold, which was also supported by a softer dollar. The dollar index declined slightly on Friday after touching a near one-week high in the previous session.

The bilateral meeting between President Donald Trump and his Chinese counterpart Xi Jinping at the G20 meeting in Osaka, Japan, on Saturday ended with the two leaders agreeing to resume trade negotiations. The US also temporarily halted further tariffs on Chinese goods.

“Gold will be pressured as trade optimism reduces the appeal of the yellow metal as a safe haven," said Alfonso Esparza, senior market analyst at Oanda in Toronto.

Global demand grew to 1,053 tonnes in the first quarter, up 7 per cent from the same period last year, according to the World Gold Council.

Official gold coin demand had its best start since 2014, rising 12 per cent in the first quarter compared to the prior year period to reach 56.1 tonnes, it said. Iran, Turkey, South Africa, the UK and US accounted for most of this growth.