Gold Hits 6-Month High As Markets Get Defensive Amid Trade, Volatility Concerns

London (Dec 28)  Gold prices extended gains Friday, taking spot bullion to a fresh six-month high, as investors continue to plow cash into defensive assets amid surging equity volatility and renewed concerns over the health of the world's biggest economies.

Spot gold was marked 0.5% higher in early European trading and changing hands at $1,2801.08 per ounce, the highest since June 19. Gold prices have gained nearly 8% since early October, when bets against the bullion hit a record high, with investors shifting cash into the precious metal as the U.S. dollar pared gains and global equities slipped into correction territory amid concerns over slowing economic growth, escalating trade tensions and rising U.S. interest rates.

"Any escalation in the US/China trade war and significant disruption from a hard Brexit two potential risk events that could trigger a breakout higher," BMO Capital Markets Colin Hamilton wrote in a recent client note. " However,  we view central bank policy as more influential to near-term price dynamics, largely on the premise that tensions between the US and China will gradually dissipate and the impact of tariff tantrum on the market slowly fades."

The SPDR Gold Shares ETF (GLD) ,  the market's biggest, has gained just over 7.1% since bullion prices turned on October 1, more than double the performance of the S&P 500  , which has slumped some 14.6% over the same time period.

The move into gold over the past two weeks, which has taken prices more than 3.6% higher, as also mirrored corresponding increases in equity market volatility, which has seen the CBOE Group's key volatility index, the VIX, rise more than 46% to a 10-month high, triggering some of the biggest single-day moves in Wall Street history, including the largest-ever Christmas Eve decline for the S&P 500 on Monday, followed by the first 1,000-point gain for the Dow Jones Industrial Average  on December 26.

Investors are now pricing in no near-term rate hikes from the U.S. Federal Reserve, following last week's 0.25% increase that took FedFunds to a range of 2.25% to 2.5%. And with bets against rate hikes intensifying over the past two days, following the biggest-ever decline in the Richmond Fed's key manufacturing index and the most significant decline in U.S. consumer confidence in three years, according to Conference Board data published Thursday, others see similar upside potential for gold prices in the coming months.

"I still expect $1300 + in 2019 as given the recent equity market shellacking, unless there is significant progress on the trade front, the Fed will most likely hold off raising rates until Mid 2019 which should be supportive from gold prices," said Stephen Innes of Singapore-based futures brokerage Oanda. "So, gold should continue to glitter in the risky environment despite overnight profit-taking triggered by surging equity markets and a stronger U.S. dollar."

TheSteet