Gold price hits nine-year high on U.S.-China tensions

New York (July 23)  Spot gold was up 0.4% to $1,878.76 per ounce at 1141 GMT, having hit its highest since September 2011 at $1,888.26. U.S. gold futures rose 0.6% to $1,876.70. "Gold as store of value has significantly enhanced so it wouldn't be a surprise if it rises to $1,900," Bank of China International analyst Xiao Fu said. Geopolitical risks, worries about further tensions between Washington and Beijing and ample liquidity from widespread central bank stimulus measures are driving prices, she added. The United States gave China until Friday to close its consulate in Houston, Texas, following allegations of spying. Supporting bullion further, the dollar index touched a more-than four-month low.

Expectations of another round of U.S. stimulus measures also helped gold, since it is considered a hedge against inflation and currency debasement. Indicative of investor sentiment, holdings in SPDR Gold Trust , the world's largest gold-backed exchange-traded fund, rose 0.4% to 1,225.01 tonnes on Wednesday, the highest since March 2013. "Gold could overshoot much higher to the upside, but the subsequent decline will be quite dramatic as well ... As more economies reopen and return to normal activity, the economic data improves then there will not be much need to pile up in gold," Xiao said. Elsewhere, silver fell 1.4% to $22.70 per ounce, after rallying to a nearly seven-year high, spurred by hopes for a revival in industrial activity. Palladium declined 1.1% to $2,124.65 per ounce, while platinum fell 1.7% to $906.08.

Market tightness in the second half of 2020, supported by monetary and fiscal stimulus measures, should support palladium prices over the next 12 months, UBS said in a note, adding it expected the auto catalyst metal to reach $2,500/oz by mid-2021.

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