Markets Jul 28

Gold hits new record, equities up on US stimulus hope

Gold strikes record price of $1,981.27 per ounce amid US-China tensions, growth worries and mounting Covid-19 infection count  

by AFP
Gold hits new record, equities up on US stimulus hope
File photo: AFP.

Gold chalked up another record on Tuesday as the dollar extended losses and traders rushed into safe havens as fears about the coronavirus pandemic mounted, while equity markets rose on hopes for a fresh US stimulus package and more Federal Reserve largesse.

With worrying new spikes in Covid-19 in Asia and Europe – on top of the already high new US cases – forcing governments to impose strict containment measures, the global economic outlook remains clouded, putting the brakes on a months-long stocks rally.

The virus uncertainty descending on trading floors, combined with China-US tensions, has sent gold soaring nearly 30% and on Tuesday it hit another record of $1,981.27, smashing the previous day's all-time high.

And observers say $2,000 could be broken as early as this week, with focus on the Federal Reserve's next policy meeting, which is tipped to see it unveil more easing measures to support the world's top economy. The rush for bullion has also dragged silver to a seven-year high above $26 an ounce.

US second-quarter economic growth data is also due this week, and a disappointing reading on what is expected to be a historic contraction could fuel further dollar weakness.

"There seems to be enough momentum in the US money supply to actually push gold higher," Fat Prophets analyst David Lennox said.

"As Covid-19 continues to ravage the economy, there's probably more stimulatory action to come. As the US dollar weakens, obviously gold will improve, but it's more a matter of the acceleration of US money supply, and that's caused by governments obviously throwing money into the economy."

'Pathetic' proposal

There are hopes US lawmakers can hammer out a new economy-boosting stimulus programme as their previous $3 trillion package begins to dry up.

After an extended period of haggling with the White House, Republicans eventually unveiled a $1-trillion scheme that slashes unemployment benefits by two-thirds.

However, there are concerns bipartisanship could make the passage of any bill arduous, with Democrats proposing $3.5 trillion of spending, while House Speaker Nancy Pelosi branded the Republican offer "pathetic" and not enough to support the country.

Asian markets rose but were off earlier highs.

Hong Kong and Shanghai both rose 0.9%, while Tokyo added 0.3% and Sydney gained 0.6%.

Seoul and Taipei each climbed more than 1% and there were also gains in Singapore, Jakarta and Wellington.

"The economic data is absolutely disastrous and the profit outlook isn't so great either and yet we've seen this big rebound in the markets," Terri Spath, at Sierra Investment Management, said.

"The reality is that the Fed has proclaimed that they are going to keep the printing presses rolling, they will print money and it has created this all-you-can-eat buffet. 

"The data doesn't support this and so expect volatility, expect drawdowns going forward. The bottom may be in for the year, but we do expect volatility in the future."

Key figures around 0230 GMT 

Gold: UP 1.4% at $1,972.03 per ounce

Tokyo - Nikkei 225: UP 0.3% at 22,792.76 (break)

Hong Kong - Hang Seng: UP 0.9% at 24,830.49

Shanghai - Composite: UP 0.9% at 3,234.80

Euro/dollar: UP at $1.1758 from $1.1751 at 2100 GMT 

Dollar/yen: DOWN at 105.35 yen from 105.38 yen 

Pound/dollar: UP at $1.2887 from $1.2878 

Euro/pound: UP at 91.37 pence from 91.22 pence 

West Texas Intermediate: UP 0.2% at $41.69 per barrel 

Brent North Sea crude: UP 0.5% at $43.62 per barrel 

New York - Dow: UP 0.4% at 26,584.77 (close)

London - FTSE 100: DOWN 0.3% at 6,104.88 (close)