Gold Prices Rise as Paris Attacks Spark Safe-Haven Demand
Gold’s gains could be short lived, analysts say, as the market refocuses on the U.S. Federal Reserve
Gold prices rose, breaking a three-session losing streak as the terror attacks in Paris sparked safe-haven demand for the metal.
The precious metal has long acted as a safe store of value during periods of heightened global uncertainty. That role faded somewhat this year as investors have focused on the timing of the next U.S. interest rate rise, a trend that kept a tight lid on Monday’s rally.
The most actively traded gold futures contract, for December delivery, gained $2.70 to $1,083.60 a troy ounce on the Comex division of the New York Mercantile Exchange. It did touch a one-week intraday high overnight, but spent most of the session slowly retreating from there.
“Obviously, the tragic events in Paris are looming large in the market this morning,” saidJonathan Butler, a precious metals strategist at Mitsubishi Corp. “We saw something of a safe-haven bid, as one often sees in these times.”
Gold’s move contrasted with most other markets, with European equities and bonds mainly shrugging off Friday’s attacks that left at least 129 people dead.
But gold’s gains could also be short lived, analysts said, with the precious metal expected to head lower as the market refocuses on the U.S. Federal Reserve.
“…low growth, low inflation and dollar strength, all pointing to lower gold prices,”Barclays said Monday in its quarterly outlook.
“Notwithstanding any very short-term safe-haven bids, I think we’re still probably coming under pressure from macroeconomic factors, in particular the looming U.S. rate hike next month,” said Mr. Butler.
Some analysts believe that gold’s safe-haven status had faded because investors have become so focused on the first U.S. rate rise in almost a decade and because inflation, a typical driver of gold, has been largely absent from major economies.
This August, when fears about China’s economic health triggered a 17% collapse in oil prices and an 11% plunge in the S&P 500 stock index, gold gained just 5.9% before falling back. The pattern repeated throughout 2015, with events such as Russia’s involvement in the separatist war in Ukraine and in Syria moving oil markets but barely affecting gold.
The Fed has indicated that it will raise interest rates at its meeting in December, after leaving rates unchanged at meetings in September and October.
A rate increase would likely strengthen the dollar and make the precious metal more expensive to buy for those holding weaker currencies. Gold, which doesn’t pay interest and costs money to hold, would also become less competitive with yield-bearing assets, like Treasurys, when rates are higher.
Source: WSJ – Gold Prices Rise as Paris Attacks Spark Safe-Haven Demand
