Gold prices surge to highest in almost eight years

Gold grains
Gold grain is seen before being melted into 1kg gold bars during a refining process at AGR (African Gold Refinery) in Entebbe, Uganda.

Gold prices surged to their highest in nearly eight years on Wednesday, while global shares cooled as signs of an acceleration in coronavirus cases kept investors on edge.

Fuelling concerns about the prospects for an economic recovery was data showing several U.S. states seeing record infections and the death toll in Latin America passing 100,000, according to a tally.

The New York Times reported the European Union was prepared to bar U.S. travellers because of the surge of cases, putting it in the same category as Brazil and Russia.

Adding to the gloom, European Central Bank chief economist Philip Lane warned that the euro zone economy would need a long time to recover from the pandemic-induced crisis and a string of solid data in recent days was not necessarily a good guide to recovery.

And the United States is considering tariffs on $3.1 billion of exports from Britain, France, Spain and Germany, Bloomberg news reported, citing a notice published by the office of the U.S. Trade Representative.

All that and recent softness in the dollar, along with endless cheap liquidity from central banks, helped spot gold gain 0.6% to $1,777.53 per ounce, having earlier hit its highest since October 2012 at $1,779.06.

Global stocks were 0.4% lower and have been moving sideways in recent weeks after rising more than 40% from March lows on hopes the worst of the pandemic was over.

The sell-off in European shares deepened, with the pan-European STOXX 600 down 1.6%, heading for its worst day in nearly three weeks.

Positive sentiment was in short supply despite German business morale posting its strongest rise in June since records began. The Ifo institute said Europe’s largest economy should return to growth in the third quarter after the coronavirus pandemic hammered output in the spring.

Emerging market stocks earlier climbed to a 3-1/2 month high, before paring gains later. MSCI’s broadest index of Asia-Pacific shares outside Japan earlier touched its highest since lockdowns first cratered markets in early March.

E-Mini futures for the S&P 500 was 0.9% lower.

“Global equity market futures are struggling to make gains today, likely for no other reason than with rising daily COVID-19 cases in the U.S. remaining front page news, the headlines are proving to be a weighty burden to bear this morning,” Stephen Innes, chief global market strategist at AxiCorp, said.

“The trough in global growth is indeed behind us, but the recovery trajectory in H2 remains uncertain.”

Against a backdrop of concerns over a weaker U.S. dollar and that a jump in infections will lead to more stimulus measures, gold should remain on a reasonably constructive path, he said.

The euro traded flat at $1.1307.

The dollar regained some ground after two straight days of losses, gaining 0.1%.

“The dollar and risk sentiment are likely to remain broadly negatively correlated, barring the U.S. displaying clear and enduring leadership in the global economic recovery, something hard to square with the grim U.S. news on COVID,” said Ray Attrill, head of FX strategy at NAB.

The New Zealand dollar fell almost 1% after the country’s central bank said it might have to do yet more to stimulate the economy, including cutting rates further, expanding bond purchases or even buying foreign assets.

Euro zone bond yields were broadly steady, with a focus on Austria which launched the sale of a new 100-year bond that will raise 2 billion euros, one of the longest-dated bond sales since the coronavirus crisis.

Germany will also visit the primary market with the first reopening of a 15-year bond which is expected to raise 2.5 billion euros.

Oil prices were down as record high inventories and worries about a second wave of the pandemic outweighed support from a gradual reopening of global economies.

Brent crude was down 1% at $42.20 a barrel, while U.S. West Texas Intermediate (WTI) crude fell 1.4% to $39.81 a barrel.

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