Gold hits a record and dollar falls as economic outlook darkens

Gold rose to an all-time high and the dollar weakened to a multiyear low on concerns over the US economic outlook and deteriorating relations between Beijing and Washington.

The price of the precious metal, which investors typically view as a haven in times of uncertainty, climbed as much as 2.2 per cent to a record $1,944.71 per troy ounce in Asia trading on Monday.

Gold has rallied in recent sessions as doubts have deepened over the prospects for a smooth economic recovery in America. The US reported a total of 62,000 new coronavirus cases on Sunday with states including Florida, Tennessee and Arizona recording the highest number of new cases per million people.

The jump for gold came as the greenback lost ground against a swath of currencies. The dollar index, which measures the currency against a basket of trading peers, fell 0.5 per cent to its lowest level since June 2018.

Tension between the US and China was heightened at the weekend by the arrest of a Chinese researcher who American authorities said had been hiding in the country’s San Francisco consulate. Washington has alleged the researcher is a member of the Chinese military.

“Markets are quite alert to both the virus’s spread and the rising tensions, and [investors] prefer to hold gold to hedge against these kinds of uncertainties,” said Ken Cheung, chief Asian foreign exchange strategist at Mizuho Bank.

Line chart of $/ounce showing Gold shines as investor confidence wanes

The dollar’s weakness came ahead of a meeting by the US Federal Reserve’s rate-setters on Wednesday. Republicans are also set to unveil their proposals for a new round of stimulus later on Monday. Existing benefits, passed at the start of the coronavirus crisis in March, are set to expire at the end of the month.

The Japanese yen, another perceived haven, strengthened 0.5 per cent to a four-month high of ¥105.60 per dollar. The pound rose 0.3 per cent to $1.2833 and the euro gained 0.4 per cent to $1.1701.

China’s onshore-traded renminbi added 0.2 per cent to 7.0022 per dollar.

Qi Gao, a currency strategist at Scotiabank, said that tit-for-tat closures of consulates in Houston and Chengdu last week had stoked tension to the point that it had weighed on the US currency. “In the coming weeks you’ll see the dollar weakening further,” he added.

Asian equity markets reversed earlier gains. China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks was down 0.3 per cent in early afternoon trading while Hong Kong’s Hang Seng slid 0.6 per cent. The Hang Seng Tech index, a new internet-focused equity benchmark that launched on Monday, dropped 2.5 per cent.

HSBC’s Hong Kong-listed shares were down 2.6 per cent a day after the UK-headquartered bank, which has been dragged into the clash between Washington and Beijing, denied “setting traps to ensnare” Huawei.

Japan’s Topix index was little changed as traders returned from a long weekend.

Futures markets tipped US and UK stocks to climb when trading begins later in the day. The S&P 500 was set to rise 0.4 per cent while the FTSE 100 was tipped to gain 0.1 per cent.


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