Gold Futures Climb on Fed View, Resurgent Coronavirus Concerns

(Bloomberg) -- Gold futures advanced after the Federal Reserve vowed to hold interest rates lower for longer and investors tracked signs of a resurgence in infections in some U.S. states.

The haven pushed higher after Chairman Jerome Powell said Wednesday the Fed is committed to “do whatever we can, for as long as it takes” to help the economy mend from the coronavirus pandemic. Almost all officials forecast keeping rates near zero through 2022, and the central bank also said it will at least maintain the current rate of bond purchases.

“You almost couldn’t come up with a better script for a strong fundamental environment for gold than what we saw from the Fed yesterday,” Matt Weller, global head of market research at Gain Capital Group LLC, said by phone. “It’s really an environment of rampant monetary stimulus, and historically that’s exactly the type of environment in which gold has thrived.”

Comex gold futures for August delivery rose 1.1% to settle at $1,739.80 an ounce at 1:30 p.m. in New York, the highest closing price in more than a week. Holdings in exchanged-traded funds backed by gold advanced for the first time in five sessions on Wednesday.

Localized surges of new infections in states including Texas, Florida and California have raised concern among health experts even as the nation’s overall case count early this week rose just under 1%, the smallest increase since March.

Bullion prices pared earlier gains as U.S. equities tumbled by the most in more than two months, with the S&P 500 careening toward a third day of losses. A plunge in equities in March led to a drop in gold prices at the time as investors sold bullion to cover losses in other assets, and fears of a similar pattern may have led to the dip in bullion on Thursday, said George Gero, a managing director at RBC Wealth Management.

“All the worries that gold investors have seen have not disappeared,” Gero said. “When everything is selling off, investors tend to raise cash, and they’re going to sell the most liquid. The second part of this, is if we’re going to have economic pain that may last for years, that’s anti-inflationary, and that’s a headwind for gold.”

Ahead of the Fed gathering, Goldman Sachs Group Inc. forecast bullion would rise to $1,800 an ounce over 12 months and may even see a breakout beyond $2,000 if inflation expectations outpace a rise in nominal rates -- similar to what happened in the third quarter of 2009.

“The conditions are here for gold still going to $1,800,” Dominic Schnider, head of commodities & Asia Pacific currencies at UBS Group AG, told Bloomberg Television. The metal has support “with rates staying where they are for longer, and real rates expectations potentially shifting more negative,” he said.

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