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Gold Prices Soar on Global Economic Worries - WSJ

The precious metal posted its biggest one-day gain in more than 14 months

By CAROLYN CUI
The Wall Street Journal
Updated Feb. 8, 2016 4:28 p.m. ET

News Link: http://www.wsj.com/articles/gold-prices-soar-as-dollar-weakens-1454952346

Gold prices posted the biggest one-day gain in more than 14 months on Monday, as the continued tumult in global financial markets boosted the metal’s lure as a haven asset.

In recent trade, gold futures jumped 3.5% to close at $1,197.90 a troy ounce--the highest settlement since June 19--on the New York Mercantile Exchange. It represented gold’s largest percentage gain since November 2014. Gold has risen 13% since the start of the year amid turmoil in global markets and weak economic data signals, particularly from China.

A fall in the dollar Monday against other major currencies, sharp losses in equity marketsacross the board and a continuous slide in oil prices have contributed to investor jitters about the unsteady economic conditions and weakening corporate earnings, pushing investors to plow money into gold.

“A strong risk-off sentiment is feeding into the gold market,” said James Steel, chief precious-metal analyst at HSBC Securities (USA) Inc.

For some, the latest surge in gold prices came as a surprise as the precious metal, which is traditionally perceived as a safe-haven investment, had disappointed its followers in recent years due to its poor performances despite the volatility in global markets.

Outstanding contracts of gold futures declined by 12% in January from a year earlier, as “fund managers were about to take it off their radar screens,” said George Gero, a precious-metal strategist at RBC Capital Markets.

However, fears over political tensions and the health of some European banks have permeated the markets, driving investors to scramble for an additional havens outside U.S. government bonds. Investors in some countries, such as Venezuela, aren’t allowed to own Treasurys, he added, and speculated such investors are buying gold.

“It’s the fear of the unknowns” that’s been driving up the demand for gold, Mr. Gero said. In a sign of pent-up demand, physical gold held by the SPDR Gold Shares, the world’s largest gold exchange-traded fund, increased 9% this year.

Demand for physical gold, including bars and coins, has been rising in India and China, two the world’s largest gold consumers, underpinning the rally.

Also helping gold was a weaker dollar. The WSJ Dollar index was recently down 0.2% to 89.70, reflecting diminished expectations for interest-rate increases in the U.S.

In the past, the rise in gold prices was often offset by strength in the dollar due to strong bids for Treasurys amid worries about financial markets. “This time, the dollar has sold steadily. That I think is one of the prime reasons,” Mr. Steel said.

The Dow Jones Industrial Average fell 1.2%, to 15996.44, while the S&P 500 dropped 1.5% to 1851.42.

U.S. 10-year Treasury yields fell to 1.742% as prices rose, while 10-year German government bond yields fell to 0.219% and Southern European bonds sold off sharply. Losses in the oil market accelerated, with U.S.-traded crude futures down 3.9% to $29.69 a barrel.

Elsewhere in precious metals, silver ended up 4.4% to $15.426 per ounce, palladium rose 3.9% to $518.10 per ounce, and platinum gained 2.8% to $928.7 an ounce.

Write to Carolyn Cui at [e-mail]