Gold prices climbed on Tuesday to settle at their highest in 14 months, as comments made by European Central Bank President Mario Draghi were seen as setting the stage for lower interest rates.
Draghi’s comments came ahead of the U.S. Federal Reserve’s monetary policy statement due Wednesday.
While Fawad Razaqzada, technical anlalyst at Forex.com, does not expect the central bank to announce a cut to key interest rates Wednesday, “it is very likely to prepare the markets for a July trim,” he said.
If so, Razaqzada sees no reason for the bond market rally to falter Wednesday “or at any time soon”, reflecting expectations for U.S. and other developed economies to slow. Lower bond yields and borrowing costs could be good news for stocks as well as commodities which offer no yield assets such as gold and silver, he said.
August gold GCQ19, +0.54% climbed $7.80, or 0.6%, to settle at $1,350.70 Tuesday, the highest most-active contract settlement since April 18, 2018, according to FactSet data.
On Tuesday, at an annual conference in Sintra, Portugal, Draghi said the ECB could roll out fresh stimulus as soon as its next policy meeting in July, which sent the U.S. dollar lower against the euro and boosted most major equity benchmarks. Investors have been betting that central banks would ease monetary policy in the face of stubbornly low inflation, and a global economic slowdown that is being exacerbated by a tariff battle between the U.S. and other countries.
“The critical tenet of our bullish gold outlook is ‘Doves to the Rescue’, referring to the chorus of central banks that are on the threshold of signalling even looser monetary policy while trade and geopolitical risks remain eye-catching and on the rise,” said Stephen Innes, managing partner at Vanguard Markets.
“If the Fed comes out anywhere near as dovish as the markets lean, gold will continue to march higher on the path paved with glittering gold bars,” he said.
Signs that central banks may support rate cuts pushed yields on global debt lower which is bullish for gold which doesn’t offer a yield. The yield on the 10-year Treasury note TMUBMUSD10Y, -1.74% touched its lowest in 21 months.
Those factors helped gold gain, even as the Dow Jones Industrial Average DJIA, +1.45% the S&P 500 index SPX, +1.10% the Nasdaq Composite Index COMP, +1.55% and European benchmark, the Stoxx Europe 600 Index SXXP, +1.67% all rallied.
Uncertainty about the global economy and the trade conflict have helped to drive appetite for precious metals. On Tuesday, however, U.S. President Donald Trump hinted at progress in trade talks with China.
In other metals dealings, July silver SIN19, +1.15% gained 16.4 cents, or 1.1%, at $14.993 an ounce, while July copper HGN19, +2.15% settled at $2.703 a pound, up 5.7 cents, or 2.1%.
July platinum PLN19, +1.07% added 0.9% to $802 an ounce after a 1.2% decline a day earlier, and September palladium PAU19, +1.37% rose 1.2% to $1,473.30 an ounce.
Among exchange-traded funds, SPDR Gold Shares GLD, +0.48% added 0.4%.
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