Gold Futures Touch Record as Haven Demand Builds, Contract Rolls

(Bloomberg) — Gold futures traded at a record high as the dollar plunged and concerns about the global economy boosted demand for havens, while a contract roll provided a further boost to the metal’s rally.

Bullion’s move came as a gauge of the dollar fell to the lowest in more than six months amid negative real rates in the U.S. and bets that the Federal Reserve will keep policy accommodative when it meets this week. Inflows into gold-backed exchange traded funds this year have surpassed a record set in 2009, with total holdings at an all-time high of more than 3,300 tons.

The contract roll is another fillip to prices. December overtook August as the contract with the highest open interest on Thursday, though final data wasn’t released until the Friday trading session was already underway in Asia. The December contract touched $1,927.10 an ounce Thursday, above the record for the most-active contract of $1,923.70 reached in 2011, and traded at $1,935.10 by 6:25 a.m. in Singapore on Monday.

Investors have poured into gold as the coronavirus pandemic’s hit to global growth underpinned its status as a safe haven. But the metal’s getting support from a long list of factors: geopolitical tensions are rising, real rates have tumbled, the dollar is weaker, and government and central banks worldwide have unleashed vast stimulus measures to try and boost economies.

The Message Behind Gold’s Rally: The World Economy Is in Trouble

The environment has even raised the specter of stagflation, a rare combination of sluggish growth and rising inflation that erodes the value of fixed-income investments. In the U.S., investor expectations for annual inflation over the next decade, as measured by a bond-market metric known as breakevens, have moved higher the past four months after plunging in March.

U.S. bond markets have been a key metric to watch and a driving force behind the rush to gold, which is serving as an attractive hedge as yields on Treasuries that strip out the effects of inflation fall below zero. Traders are again eying record low yields, with dimming hopes for a sharp U.S. growth recovery fueling expectations that the Fed is about to signal more accommodation ahead.

Investors are set to get a steer from the Fed this week, with officials meeting July 28-29. Chair Jerome Powell and his colleagues are expected to keep interest rates near zero and repeat their guidance they’ll stay that way until the economy has shrugged off the coronavirus and is back on track.

While December gold futures are at a record, August, which has the bigger volume, traded at $1,907.10. Spot gold was at $1,907.90.

Still, most analysts are bullish on the metal’s outlook. Goldman Sachs Group Inc. said the metal could reach $2,000 in the next 12 months, and Citigroup Inc. puts a 30% probability on prices topping that level by the end of this year.

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