Gold. Picture: REUTERS
Gold. Picture: REUTERS

Bengaluru — Gold prices rose on Monday as Asian shares resumed their fall and investors grappled with the effect of the ongoing China-US trade war and higher US interest rates.

Spot gold was up 0.4% at $1,222.0/oz at 4.17am GMT, and not far off last week’s two-month high of $1,226.70.

US gold futures were up 0.2% at $1,225.60/oz.

“Gold is closely following the stock market. When stock markets are not stable, there is some safe-haven buying,” said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.

“There are many uncertainties ahead for equities, including the ongoing trade war, upcoming mid-term elections in the US, along with an expected interest rate hike in December.… We will have to see how gold reacts to these.”

Asian shares slipped on Monday, with MSCI’s broadest index of Asia-Pacific shares outside Japan down 1%.

“Gold is more appealing after the stock market crash. It has regained some of its safe-haven lure,” said Brian Lan, MD at Singapore dealer GoldSilver Central.

An abrupt shift in Fed policy is likely to lead to a lack of confidence in the world’s most important central bank and could destabilise markets further
Stephen Innes

A sell-off in equities last week, helped gold break above the narrow trading range of the past one-and-a-half months, with the metal jumping as much as 2.5% on Thursday, its biggest one-day percentage gain in more than two years.

“Gold remains supported by escalating geopolitical tensions.… Adding to the mix is the thought the FOMC [Federal open market committee] may consider pausing their widely expected rate hike in December if global equity markets continue to falter,” said Stephen Innes, Asia-Pacific trading head at Oanda in Singapore.

“An abrupt shift in Fed policy is likely to lead to a lack of confidence in the world’s most important central bank and could destabilise markets further.”

The Fed hiked rates in September for the third time in 2018 and is expected to raise them again in December.

Gold remains down by more than 10% from its April peak, pressured by a strong dollar as the China-US trade war unfolds and higher US interest rates.

China faced “tremendous uncertainties” due to the effect of tariffs and trade frictions, China central bank governor Yi Gang said on Sunday.

Gold speculators extended their net short position on Comex gold contracts by 29,881 contracts to 103,009 contracts in the week to October 9, data showed.

Spot gold may edge up to $1,235/oz, as suggested by a Fibonacci ratio analysis, said Reuters technical analyst Wang Tao.

Meanwhile, holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund (ETF), rose 0.76% to 744.64 tons on Friday.

In other precious metals, silver was up 0.6% at $14.63/oz. 

Palladium rose 0.5% to $1,071.10 and platinum gained 0.5% to $840.50.

Reuters