Gold climbed to a third record in a row on Wednesday, extending its best rally since 2008 as a dive in French bank stocks sent new shudders through anxious financial markets, sending U.S. stocks skidding.
Bullion rose as much as 3 percent, setting a new high over $1,800 an ounce, as the locus of traders’ euro zone debt fears shifted from Spain and Italy to France, where President Nicolas Sarkozy called for new fiscal restraint as markets fretted over the possibility that it may be next for a debt downgrade.
The latest jitters appeared to overshadow the Federal Reserve’s unprecedented decision to promise near-zero interest rates for the next two years, a double-edged sword for gold, which had been pulled back by Tuesday’s late Wall Street rally but would also benefit from a prolonged low-yield environment.
Spot gold rose near 3 percent to hit a high of $1,796.86 an ounce; it was up 2.3 percent at $1,784 by 12:00 p.m. EDT (1600 GMT). It also hit record highs in euro and sterling terms. U.S. COMEX gold futures for August delivery briefly topped $1,800 before pulling back.
It has rallied nearly 7 percent this week, and 20 percent since June, after a downgrade to the U.S. credit rating on Friday battered assets seen as higher risk, helped by simmering worries over euro zone debt and an increasingly grim-looking U.S. economic outlook.
France joined that list of woes on Wednesday as shares in its banks — among the most exposed to Italian and other peripheral euro zone government debt — slumped as much as 20 percent in afternoon trade as fears about the currency bloc’s debt crisis moved back to the forefront.
With governments and central banks running out of tools to combat the financial and economic distress, some analysts are now looking for gold to keep running toward $2,500, which would just top the inflation-adjusted peak of three decades ago.
“The skies would appear to be clear for these safe havens like gold,” said Andrew Wilkinson, senior market analyst at Interactive Brokers Group, Greenwich, Conn. With the debt woes spilling over into the world’s biggest economics, “we don’t know where this thing is going to stop anymore.”
Gold’s latest winning streak has broken it clear of the ascending trend channel that has contained it since late 2008 — coincidentally the last time it staged an 8 percent gain over the span of four days.
But the Relative Strength Index was flashing overbought status at 84, far above the 70 percent mark that often signals a correction may be in store. Gold has pulled back both times the index topped topped in the past 12 months.
“When you have a metal that has three or four distinct reasons why it has headed higher, it is very difficult not to be bullish in that environment,” said Mitsui Precious Metals analyst David Jolliet. But he added: “Given how far and how quickly we’ve run up, the move seems somewhat overextended.”
The Fed on Tuesday promised to keep interest rates near zero for at least two more years and said it would consider further steps to help growth.
The comments support the view that the opportunity cost of holding nonyielding gold would remain depressed. They also trigged what has proved to be a fleeting rally in stocks, one that briefly triggered a flurry of profit-taking in gold.
Global holdings of gold-backed exchange-traded funds, calculated by Reuters, fell 7.2 tonnes on Tuesday in their first daily decline in thirteen sessions.
The world’s biggest gold-backed ETF, New York’s SPDR Gold Trust, reported its biggest one-day outflow since Jan. 25 on Tuesday, of just over 13 tonnes. A day before it had seen its largest daily inflow since May last year.
Financial Post
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