Safe haven demand sets gold for biggest quarterly gain since 2016

Concerns over coronavirus infections and rising geopolitical tensions drive the rally in bullion prices

Saudis shop at a jewellery shop in the Tiba gold market in the capital Riyadh on June 29, 2020, after authorities announced a 10% increase in the VAT rate, to reach 15%, starting from first of July.  / AFP / FAYEZ NURELDINE

Gold headed for the biggest quarterly advance since 2016 amid a surge in demand for haven assets due to the ongoing coronavirus outbreak, which shows no signs of abating.

Bullion rose as the World Health Organisation has issued a warning that the worst of the pandemic is still to come because of a lack of global solidarity. Deaths have surpassed 500,000 worldwide and confirmed cases exceeded 10 million.

There’s also increased geopolitical tension after China’s top legislative body approved a national security law for Hong Kong, a sweeping attempt to quell dissent that risks US retaliation and the city’s appeal as a financial hub. Meanwhile, the Trump administration earlier said it was suspending regulations allowing special treatment to Hong Kong over matters including export licence exceptions.

The precious metal has rallied 17 per cent this year as the pandemic prompted a wave of stimulus from governments and central banks as they tried to minimise the damage to the global economy. Investors also continue to pile into gold-backed exchange-traded funds, with holdings at a record.

“Low interest rates, monetary policies and the coronavirus are all at play,” said Howie Lee, an economist at Oversea-Chinese Banking in Singapore. “The $1,800 level is a psychological hurdle. At current prices, we see gold pushing the boundaries of what our model implies as fair value, so we may need a larger collapse in Treasury rates to push gold past the $1,800 level.”

The $1,800 level is a psychological hurdle

Spot gold dropped 0.1 per cent to $1,770.88 an ounce at 7.20am UAE time. Prices are up 12 per cent in the three months ending June 30, and are set to cap seven straight quarters of gains, the longest such stretch since 2011. Gold futures on the Comex traded at $1,783.20 an ounce, closing in on the $1,800 level.

Investors will also be closely watching comments from Federal Reserve chair Jerome Powell due later Tuesday. In remarks prepared before the House Financial Services Committee, Powell stressed the importance of keeping the coronavirus contagion contained as the US economy bounces back from its deepest contraction in decades.

Among other main precious metals, spot silver rose 0.1 per cent, platinum gained 0.4 per cent and palladium climbed 0.7 per cent.