For now, the fear trade appears to be back in fashion.
Gold prices advanced 2.2 per cent to $1.235.57 an ounce on Thursday taking the precious metal’s advance to 10.4 per cent in February. If gold holds on to these gains it is headed for its best monthly performance since January 2012.
Thursday’s rally came as US stocks failed to hold on to a fourth straight days of gains. But with central banks in Sweden, Denmark, the eurozone and Japan embracing some form of negative interest rate policy, concerns about the health of the global economy have gained traction driving risk-off sentiment. That alongside doubts about the strength of the US economy and a sell-off in crude prices have driven a flight to safe have assets like gold.
Federal Reserve policymakers see increasing risks facing the US economy and many have argued that it would be prudent to wait before embarking on any further rate rises. Gold, which carries no yield, stands to benefit in a low interest rate environment.
Moreover, with doubts over the trajectory of interest rate rises going forward the US dollar has weakened — the DXY dollar index, a gauge of the greenback against its global peers has declined 2.7 per cent this month. And since the precious metal is dollar-denominated weakness in the currency makes it cheaper for foreign buyers.