Gold hits fresh two-year high on UK uncertainty

Deepening political and financial uncertainty in the UK spurred demand for the safe haven.

Worries about the Brexit and record-low bond yields boosted demand for gold. Picture: Akos Stiller/Bloomberg.

Gold reached a fresh two-year high on Wednesday as deepening political and financial uncertainty in the UK and record-low bond yields added to a darkening global economic picture.

Gold for August delivery settled up 0.6 per cent to $US1367.10 a troy ounce on the Comex division of the New York Mercantile Exchange.

“Fresh capital flows keep coming into the gold market,” said James Steel, precious metals analyst at HSBC Securities. “Many of the same things that have driven it higher in recent weeks have been intact” today, Mr Steel said, referring to record lows for the British pound and government bond yields.

On Tuesday, the yield for the 10-year Treasury note fell to an all-time low, closing below 1.4 per cent. Gold becomes more attractive to investors compared with yield-bearing assets when interest rates are low.

Minutes from the June meeting of the Federal Reserve Open Market Committee released Wednesday suggested that members were divided on whether to raise interest rates.

Uncertainty about the UK’s political future prompted some investors to speculate about how high the precious metal could rise.

“A breach of $US1400 is a distinct possibility if the UK continues to talk itself down and drags others into the quagmire,” wrote David Govett, head of precious metals at Marex Spectron, a commodities broker, in a note to clients.

Speculation about the consequences of a potential Brexit is playing out against a backdrop of concern that the global economy is deteriorating.

“The usual suspects, China still stalling and the US deferring interest-rate rises are contributing to further investment in the precious metals world,” Mr Govett said.

Analysts at Commerzbank said that exchange-traded funds, which purchase physical gold, had their largest inflows since November 2009 on Tuesday.

“Investment demand is extraordinarily strong,” they wrote in a note to clients.

The US jobs report on Friday will also give an indication of how the US economy is faring.

Higher rates would boost the dollar, making gold more expensive for investors who hold other currencies and thereby weighing on its price.

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