March 18, 2013 6:45 pm
Gold reclaims $1,600 on haven allure
Gold rallied to more than $1,600 a troy ounce for the first time in nearly three weeks as the crisis in Cyprus reawakened investor interest in the precious metal as a haven from financial instability.
Bullion prices on the spot market on Monday rose as much as 1.2 per cent on Monday, touching a peak of $1,610.81.
In euro terms, gold leapt 2.4 per cent to its highest in more than a month.
The rally marks a shift in sentiment in the gold market, as prices slid in recent months amid fears that the decade-long bull market may have come to an end.
Easing concerns about the collapse of the eurozone, signs of recovery in the US and China, and a stronger US dollar all contributed to a 13.5 per cent slide in gold prices between September and February.
Joni Teves, precious metals strategist at UBS in London, said that the move to use depositors’ funds in the bailout of Cypriot banks could spur a wave of demand for gold.
“As people start to worry about the safety of their deposits, gold would become an attractive alternative and an escalation of these worries would prompt a return of fear-related physical buying,” she said.
In previous periods of heightened fear for the eurozone’s financial stability, gold has enjoyed strong demand, particularly from conservative German, Swiss and Austrian investors.
For example, German gold demand has more than quadrupled since 2007, according to Thomson Reuters GFMS. Monday’s rally has been fuelled in part by short covering.
As gold slid to a low of $1,554.49 in mid-February, hedge funds and other investors in the US futures and options markets accumulated the largest short positions – bets on falling prices – since 1999.
“At some point those shorts are more likely to cover than to add more shorts,” said one hedge fund manager.
The unusually negative positioning by shorter-term players, who tend to trade in the futures market, suggests that gold prices could regain some upward momentum, Ms Teves said.
“This increases the potential for a sharp short-covering rally should concerns over Cyprus, and more generally the eurozone, intensify.”
A large chunk of the bearish bets in the gold market are held by algorithmic traders, according to analysts, triggered by the metal’s recent poor performance.
But since February 21, gold has rallied 3.3 per cent. Marc Ground, an analyst at Standard Bank, said that having breached $1,600, the next target for the market would be $1,650.
Nonetheless, most remain cautious about gold’s prospects to stage a significant recovery this year. HSBC on Monday became the latest major bullion bank to downgrade its gold forecast on Monday, trimming its prediction for average prices this year to $1,700 from $1,760.
Next year, the bank sees gold averaging $1,720, compared with an earlier forecast of $1,775.
Bullion prices on the spot market on Monday rose as much as 1.2 per cent on Monday, touching a peak of $1,610.81.
In euro terms, gold leapt 2.4 per cent to its highest in more than a month.
The rally marks a shift in sentiment in the gold market, as prices slid in recent months amid fears that the decade-long bull market may have come to an end.
Easing concerns about the collapse of the eurozone, signs of recovery in the US and China, and a stronger US dollar all contributed to a 13.5 per cent slide in gold prices between September and February.
Joni Teves, precious metals strategist at UBS in London, said that the move to use depositors’ funds in the bailout of Cypriot banks could spur a wave of demand for gold.
“As people start to worry about the safety of their deposits, gold would become an attractive alternative and an escalation of these worries would prompt a return of fear-related physical buying,” she said.
In previous periods of heightened fear for the eurozone’s financial stability, gold has enjoyed strong demand, particularly from conservative German, Swiss and Austrian investors.
For example, German gold demand has more than quadrupled since 2007, according to Thomson Reuters GFMS. Monday’s rally has been fuelled in part by short covering.
As gold slid to a low of $1,554.49 in mid-February, hedge funds and other investors in the US futures and options markets accumulated the largest short positions – bets on falling prices – since 1999.
“At some point those shorts are more likely to cover than to add more shorts,” said one hedge fund manager.
The unusually negative positioning by shorter-term players, who tend to trade in the futures market, suggests that gold prices could regain some upward momentum, Ms Teves said.
“This increases the potential for a sharp short-covering rally should concerns over Cyprus, and more generally the eurozone, intensify.”
A large chunk of the bearish bets in the gold market are held by algorithmic traders, according to analysts, triggered by the metal’s recent poor performance.
But since February 21, gold has rallied 3.3 per cent. Marc Ground, an analyst at Standard Bank, said that having breached $1,600, the next target for the market would be $1,650.
Nonetheless, most remain cautious about gold’s prospects to stage a significant recovery this year. HSBC on Monday became the latest major bullion bank to downgrade its gold forecast on Monday, trimming its prediction for average prices this year to $1,700 from $1,760.
Next year, the bank sees gold averaging $1,720, compared with an earlier forecast of $1,775.
Copyright The Financial Times Limited 2013.
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