Gold prices surge to record high. What’s behind the rally?

Gold touched record prices as worries over issues such as the coronavirus pandemic as well as U.S.-China tensions weighed on investor sentiment. In the morning of Asian trading hours on Monday, spot gold traded at about $1,931.11 per ounce after earlier trading as high as $1,943.9275 per ounce. Those levels eclipsed the previous record high price set in September 2011.

Gold futures were also up 1.54% to $1,926.70. In a note circulated before the new highs, Commonwealth Bank of Australia’s Vivek Dhar said the fall in U.S. 10-year real yields has been the “most important driver” among other factors, such as a weakened U.S. dollar and safe-haven demand being lifted.

The yield on the benchmark 10-year Treasury note last sat at 0.5856%. Against a basket of its peers, the U.S. dollar was at 93.906. The Japanese yen traded at 105.60 against the greenback after strengthening sharply late last week from levels above 106.40 per dollar.

“The negative relationship between long term US real yields and gold futures has held up fairly well over the longer term. That is because when long term US real yields increase, gold is less attractive relative to US interest bearing securities since gold has no income earning ability,” said Dhar, who is a mining and energy commodities analyst at the firm. “The fall in US 10 year real yields is primarily being driven by an increase in US 10 year inflation expectations.”

The moves in prices of the precious metal came as tensions have been heating up between Washington and Beijing. China announced on Friday that it ordered the United States to shut its consulate in Chengdu, following the U.S. demanding the closure of the Chinese consulate in Houston. Preceding that, Secretary of State Mike Pompeo also slammed China in a speech on Thursday. He said Washington will no longer tolerate Beijing’s attempts to usurp global order.

Meanwhile, the number of coronavirus cases globally continues to rise. More than 16 million people around the world have been infected by the coronavirus, with the U.S. accounting for roughly a quarter of that figure, according to data compiled by Johns Hopkins University.

Gold prices surge to record high amid coronavirus worries, U.S.-China tensions, CNBC, Jul 27