Gold advances toward bull market, paced by Yellen

As global stocks enter a bear market, gold is on the verge of bull status.

Global stocks slumped Thursday as investors shunned risk worldwide amid concern that central-bank efforts to support economic growth are losing potency. Federal Reserve chair Janet Yellen on Wednesday told Congress that market turbulence may weigh on the outlook for the economy if it persists. The metal jumped as much as 5.8 per cent to $US1263.90 an ounce, the highest since February 2015, and the gain was the biggest intraday advance since 2009.

Bullion has climbed 18 per cent this year, making it the best-performing commodity. The outlook for US interest rates to stay low has boosted gold's appeal because it doesn't pay interest like some other assets. Investors are piling into funds backed my the metal at the fastest pace in seven years. Shares of Barrick Gold, the world's largest producer of the metal, jumped to the highest since September 2014 in Toronto.

"Gold has been relentless, trading through $US1250 and then $US1260 in minutes; Uber drivers will be talking about this rally tonight," Tai Wong, the director of commodity products trading at BMO Capital Markets in New York, said in an email. "It seems that little exchange on negative rates with Yellen saying she wouldn't take it off the table as a hypothetical may have sparked gold's surge to highs."

Yellen had this to say when questioned about negative rates: "We had previously considered them and decided that they would not work well to foster accommodation back in 2010," Yellen told the Senate Banking Committee on Thursday. "In light of the experience of European countries and others that have gone to negative rates, we're taking a look at them again because we would want to be prepared in the event that we needed to add accommodation."

An analysis published by JPMorgan Chase & Co economists this week suggested the Fed may be able to reduce short-term interest rates to as low as minus 1.3 per cent. Yellen said the central bank's work on the feasibility of sub-zero Fed rates was ongoing.


"We haven't finished that evaluation," Yellen said. "We need to consider the US institutional context and whether they would work well here. It's not automatic. There are a number of things to consider. So I wouldn't take those off the table, but we would have work to do to judge whether they would be workable here."

Gold futures for April delivery climbed 4.5 per cent to settle at $US1247.80 an ounce at 1.51pm on the Comex in New York. Trading on the Comex in New York was more than double the 100-day average for this time. A close at $US1259.52 would signal a 20 per cent gain from a recent low and meet the common definition of a bull market.

Stock volatility and growth concerns will boost the appeal of bullion as a store of value and consumers in China and India may buy more, according to P.R. Somasundaram, the managing director for India at the World Gold Council. Gold demand resilient in 2015 as central banks and consumers spur strong H2 recovery.

Futures traders, who at the start of this year predicted a more than 50 per cent chance of a US rate increase in March, now peg the odds of a move by December at just 13 per cent. Goldman Sachs Group said this week in a report before Yellen's remarks that the bank still saw bullion dropping to $US1000 as the Fed hikes three times in 2016.

"It seems as though people are flooding to safe-haven assets," Wayne Gordon, executive director for commodities and forex at UBS Wealth Management, said in a Bloomberg TV interview in Singapore on Thursday. "We still think we could have two rate hikes at the end of the year."

* Holdings in gold-backed exchange-traded products rose 8.2 metric tons to 1571.3 tons as of Wednesday, the highest since July, data compiled by Bloomberg show. They're up 7.5 per cent in 2016, the best start to a year since 2009.

* The Philadelphia Stock Exchange Gold and Silver Index jumped 6.1 per cent, the biggest gain in a week.

* Silver futures for March delivery climbed 3.4 per cent to $US15.794 an ounce on the Comex. On the New York Mercantile Exchange, platinum gained, while palladium declined.