Gold just hit a seven-year high on virus fears

SINGAPORE (Bloomberg) -- Gold reached a new seven-year high as investors sought safety assets on concerns the coronavirus outbreak will hurt global growth and amid speculation the Federal Reserve will ease monetary policy before year-end.

Prices extended gains above US$1,600 an ounce to the highest since February 2013. The dollar strengthened and European equities fell after a spike in confirmed infections in South Korea and additional deaths in Japan.

"It looks like a self-fulfilling prophecy,” said ABN Amro Bank NV strategist Georgette Boele. As prices broke out, the move has attracted more investors into gold, she said.

The traditional haven has climbed nearly 7% this year amid mounting concern over the effects of the virus.

While minutes from the latest Fed meeting indicated the central bank could leave rates unchanged for many months, futures traders maintained expectations for at least one cut over 2020.

Spot gold advanced for a third day, adding as much as 0.4% Thursday to hit US$1,618.79 an ounce. Holdings in global exchange-traded funds backed by bullion have risen to a fresh record, and are on course for a sixth weekly expansion.

Gold could reach US$1,650 over the coming weeks, according to UBS Group AG’s Global Wealth Management unit.

"With US equity valuations elevated, any further upsets could see another bout of volatility, a further rally in government bonds and a higher gold price,” analysts Wayne Gordon and Giovanni Staunovo said in a note.

ABN Amro’s Boele added a note of caution, though. Investors will eventually seek to book profits on gold and the higher prices go the more aggressive a future sell off is likely to be, she said.

‘What Goes Up’

In other precious metals, platinum and silver declined, while palladium was little changed, trading back below US$2,800 an ounce after breaching the level Wednesday to set a fresh record.

Prices have been supported by concerns over a widening global deficit, and as the Chinese government pledged to stabilize car demand.

Palladium has risen about 40% this year. Yet the gains have been eclipsed by those of rhodium, a less-liquid metal from the same group that expanded its year-to-date advance again Thursday, to 110%.

Both rhodium and palladium are advancing on tight supplies and as demand from the car industry remains strong, Anglo American Plc said Thursday.

Still, that doesn’t mean prices may not retreat in the short term, Chief Executive Officer Mark Cutifani told investors.

"What goes up quickly can come down twice as quick,” he said.

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