Gold climbs above US$5,000 as debasement trade accelerates
Credit: The Edge
Bullion climbed as much as 1.8% on Tuesday for a seventh straight day of gains, while silver jumped more than 9%. Strong investment demand has sent precious metals sharply higher this month, with silver up 57% since the start of January. Gold and platinum have also posted significant advances.
Recent weeks have seen a revival of the so-called debasement trade, as investors retreat from currencies and Treasuries. A massive sell-off in the Japanese bond market is the latest example of concerns over heavy fiscal spending, while speculation that the US may intervene to support the yen has weighed on the dollar, making precious metals cheaper for most buyers.
The Trump administration’s actions — threats to annex Greenland and military intervention in Venezuela, as well as renewed attacks on the US Federal Reserve’s (Fed) independence — have also unsettled markets.
On Sunday, the US president threatened to hike tariffs on South Korean goods, citing what he said was the failure of the country’s legislature to codify a trade deal. The warning followed a threat over the weekend to impose 100% tariffs on Canada if Ottawa reaches a trade agreement with China.
America’s growing isolation from other nations is prompting many investors to cut holdings of dollar assets and shift into gold, according to Europe’s largest money manager, Amundi SA.
“Gold in the long term is a very good protection against debasement and a good way to maintain some purchasing power,” Vincent Mortier, Amundi’s chief investment officer, said in a Bloomberg Television interview.
Gold’s appeal is also showing up in positioning data, with options traders bracing for further gains in a market where few are willing to bet against the rally. Implied volatility on Comex futures climbed to the highest since the peak of the Covid-19 pandemic in March 2020, while volatility on State Street’s SPDR Gold Shares — the world’s largest bullion-backed exchange-traded fund (ETF) — has also moved sharply higher.
“Gold’s continued rise reflects investment motives which may be persistent: higher reserve allocations, and investors raising allocations to non-dollar and real assets,” analysts at Deutsche Bank AG wrote in a note Monday, raising their forecast to US$6,000 an ounce by year end.
Silver, meanwhile, moved towards an all-time high above US$117.71 reached in the previous session, when it posted its biggest intraday jump since the global financial crisis in 2008. The rally has been supported by strong physical demand and speculative interest in a relatively illiquid market, with signs that buyers in China are leading the move.
Extreme price swings in silver have driven heavy trading volumes in iShares Silver Trust, the largest silver-backed ETF, with almost US$40 billion in turnover recorded on Monday.
That’s almost on a par with the State Street SPDR S&P 500 ETF and exceeds the US$23 billion of trading in Nvidia stock or Tesla’s US$22 billion in turnover. A few months ago, daily trading in the silver ETF was about US$2 billion, before it increased to around US$10 billion in late December.
Gold had risen 1.5% to US$5,081.17 an ounce as of 12.14pm in London on Tuesday. Silver advanced 7.8% to US$111.89. Platinum climbed 3.3% and palladium was up 3.9%. The Bloomberg Dollar Spot Index edged 0.1% lower.
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