(Bloomberg) – Gold has peaked in seven years as massive US unemployment benefit deposits and the Federal Reserve’s drastic measures to support the economy have spurred demand for the metal as paradise.
Futures contracts rose 4.2% after the Fed announced up to $ 2.3 trillion in additional aid on Thursday, including a commitment to support the riskiest corners of the financial markets that were among the most hard hit by the fallout from the coronavirus pandemic. This came as a report showed that jobless claims in the United States increased for a third consecutive week.
The metal closed at an all-time high since late 2012, as investors sought insurance against the possibility of a further economic slowdown, even though US stocks rose after the move by the Fed. The prospect of easier monetary policy and low borrowing costs is also fueling the demand for bullion, which does not offer interest. Yields on US Treasuries dropped on Thursday.
“Unprecedented monetary and fiscal stimulus, negative yielding debt and low interest rates for a longer period imply that gold will continue to attract the flight to security and quality,” said Suki. Cooper, precious metals analyst at Standard Chartered Plc, in a note.
The gold futures contract for delivery in June increased 4.1% to $ 1,752.80 an ounce on the New York Comex, the highest closing price since October 2012. The metal traded gained 6.5% in the shortened week. Spot gold rose 2.2% to $ 1,681.94 an ounce in the middle of the afternoon Thursday.
The spread between New York futures and London spot prices is still high, a sign of continued concern about the future supply of the metal’s physical form. As investors continue to seek gold as a refuge, it is still difficult to ship bullion around the world due to restrictions related to coronaviruses, which further drives up prices over time.
Uncertainty about when restrictions will be lifted increases speculation that dealers are facing logistical risks. Liquidity is also relatively low in the market, which further exacerbates the price dislocation.
“People pay the premiums in the physical market and I think it affects the futures,” said Peter Thomas, executive vice president of the Chicago-based broker, Zaner Group. “It is a safe purchase. People are scared. “
Certainly, there is a lot of gold available in New York, according to the Comex exchange. Inventories available for delivery on futures are at their highest in more than a decade, at approximately 4.4 million ounces.
That compares to just 81,100 ounces – the amount of gold that is needed for a potential delivery in April based on the open interest in the contract of the month. In addition, the total inventory tracked by Comex reached a record of over 17 million ounces.
Read also: Gold markets are again haunted by signs of dislocation
“The market itself is not broken, no, it is facing the exogenous shock of the dramatic reduction in shipments,” said Rhona O’Connell, responsible for market analysis for the EMEA region and Asia. at INTL FCStone. “It’s the inability to move the metal that makes people nervous about committing to short positions on futures.”
That said, the spreads should be temporary as the major refineries restart, said Cooper Standard Chartered.
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