Swiss shock move spurs gold bid as ETP assets jump
Investors fearing currency volatility seek safety in exchange-traded products backed by bullion
The Swiss central bank's surprise move to abandon the franc's cap against the euro sent investors rushing to gold as a haven from swings in currencies.
Assets in the SPDR Gold Trust, the biggest exchange-traded product backed by bullion, rose 1.4 per cent to 717.15 tonnes on Thursday, the biggest jump since August 2011. Futures in New York capped the longest rally in more than six months as investors sought safety amid surges in currency volatility.
"You had a lot of people buying into gold products for investment reasons," said Michael Cuggino, the president and portfolio manager at Permanent Portfolio Family of Funds in San Francisco. "With the Swiss National Bank making such a dramatic move to get out of the way of the falling euro, it's part safety trade and part asset protection given the devaluation of the currency."
Prices climbed 6.4 per cent this year as Europe's flagging economy boosted speculation that officials will add to stimulus measures, increasing demand for a store of value. The World Bank this week cut its 2015 global growth forecast, and a collapse in oil prices is sparking concern over deflation. Muted inflation and stagnant foreign economies may prompt the Federal Reserve to wait longer before raising interest rates.
Demand for the metal will rebound in 2015 after two consecutive annual declines as consumption in Asia advances and investors return to bullion ETPs, according to HSBC Securities (USA). Assets in global gold funds declined 164 tonnes last year as prices posted a consecutive annual decline for the first time since 1998.
Gold for February delivery fell 0.4 per cent to US$1,260.10 on the Comex in New York at 11.51am yesterday in Singapore. Prices surged 2.5 per cent a day earlier to settle at US$1,264.80, after touching US$1,267.20, the highest since September 8, and completed a fifth session of gains, the longest since June 25.