Gold rush: Precious metal surges to record on US-China concerns

Gold hit an all-time high on Monday as tit-for-tat consulate closures in China and the United States rattled investors, boosting the allure of safe-haven assets although sentiment was mixed, with tech gains supporting some Asian stocks.

MSCI’s ex-Japan Asia-Pacific index rose 1.3 percent as Taiwan’s TSMC, Asia’s third-largest company by market capitalisation, rose almost 10 percent, adding to Friday’s 12-percent surge.

The chipmaker’s gains boosted other tech stocks in the region and came after rival Intel signalled it might give up manufacturing its own components due to delays in new 7-nanometer chip technology.

Also soothing sentiment, Chinese shares eked out gains after big falls late last week, with the CSI300 index rising 0.5 percent.

US S&P 500 futures were up 0.4 percent in choppy trade while Japan’s Nikkei fell 0.5 percent, resuming trade after a long weekend and catching up with falls in global shares late last week.

Global shares had lost steam last week after Washington ordered China’s consulate in Houston to close, prompting Beijing to react in kind by closing the US consulate in Chengdu.

“US President (Donald) Trump used to say China’s President Xi Jinping is a great leader. But now Pompeo’s wording is becoming so aggressive that markets are starting to worry about further escalation,” said Norihiro Fujito, chief investment strategist at Mitsubishi Securities.

Gold rose 1 percent to a record high of $1,920.9 per ounce, surpassing a peak touched in September 2011, as China-US tensions boosted the allure of safe-haven assets, especially those not tied to a specific country.

Investors are also keeping an eye on a worsening row between Beijing and Washington over China’s moves to gain territory in the South China Sea, possibly encouraging more buying into the relative safety of gold, the Japanese yen and US Treasuries, Margaret Yang, a strategist at research firm DailyFX, said in a research note sent to Al Jazeera.

The yellow metal is also being helped by aggressive monetary measures adopted by many central banks around the world since the pandemic plunged the global economy into a recession.

Some investors fret such an unprecedented level of money printing could eventually lead to inflation.

More stimulus

That means the economy could slump without fresh support from the government, with some of earlier steps such as enhanced jobless benefits due to expire this month, analysts say.

Investors hope the US Congress will agree on a deal before its summer recess, but there are some sticking points, including the size of the stimulus and enhanced unemployment benefits.

US Treasury Secretary Steve Mnuchin said the package will contain extended unemployment benefits with 70-percent “wage replacement”.

Democrats, who control the House of Representatives, want enhanced benefits of $600 per week to be extended and look to much bigger stimulus compared with the Republicans’ $1 trillion plan.

Investors are looking to corporate earnings from around the world for hints on the pace of recovery in the global economy.

Concerns about the US economic outlook started to weigh on the dollar, reversing its inverse correlation with the economic wellbeing over the past few months.

The dollar index dropped 0.3 percent to its lowest level in nearly two years.

The euro gained 0.3 percent to $1.1693, hitting a 22-month high of $1.16590 as sentiment on the common currency improved after European leaders reached a deal on a recovery fund in a major step towards more fiscal cooperation.

Against the yen, the dollar slipped 0.5 percent to 105.605 yen, a four-month low, while the British pound hit a four-and-a-half-month high of $1.2832.

Oil prices dipped on worries about the worsening Sino-US relations.