Gold breaks $1,900/oz barrier as Sino-US row drives flight to safety

Safe haven gold pierced the $1,900 per ounce ceiling on Friday for the first time since 2011 as a worsening US-China row added to fears over the hit to a global economy already reeling from the coronavirus pandemic.

Spot gold climbed 0.9% to $1,902.99 per ounce by 10:47am, having earlier hit its highest since September 2011 at $$1,905.99.

US gold futures rose 0.6% to $1,901.00 per ounce.

In yet another escalation, China ordered the United States to close its consulate in the city of Chengdu, responding to a US demand for China to close its Houston consulate.

This hammered risk sentiment and sent the dollar index to a two-year trough.

Further bolstering bullion’s appeal was the constant surge in COVID-19 cases, with the US tally crossing over 4 million on Thursday and global cases breaching 15.58 million.

Non-yielding gold has surged 24% this year, underpinned by low interest rates and stimulus from central banks, which benefits bullion since it is a perceived hedge against inflation and currency debasement.

Silver rose 0.3% to $22.79 per ounce, and was up over 18% for the week, its best since 1987, bolstered by hopes for a revival in industrial activity.

Meanwhile, global equities took a beating on Friday as China-US tensions intensified, while stalled stimulus talks in Washington fuelled fears for the economy, traders said. Lingering worries about the impact on businesses of fresh coronavirus outbreaks helped trigger major profit-taking, overshadowing a batch of bright data in Europe.

European indices were up to two per cent lower at the close.

Earlier in Asia, Shanghai and Hong Kong had already dived. Stock markets were also still reeling from Thursday’s report of a rise in new jobless claims in the US which prompted doubts about any ongoing economic rebound there, traders reported.

Hopes that the data would spur US lawmakers to push on with fresh stimulus measures were undermined by the inability of Republicans and the White House to agree on a $1.0 trillion stimulus proposal.

Separately, eurozone business activity grew in July for the first time since the coronavirus pandemic hit, as more parts of the economy that were locked down to curtail its spread reopened and people emerged from their homes to work and spend money.

Across the world almost 15.5 million people have been infected by the coronavirus but as the rate of infections has eased across much of Europe, governments have loosened some restrictions. That unleashing of pent-up demand pushed IHS Markit’s flash Composite Purchasing Managers’ Index (PMI), seen as a good indicator of the bloc’s economic health, to 54.8 in July from June’s final reading of 48.5, its highest since mid-2018 and well ahead of the 51.1 forecast in a Reuters poll.  The headline index had been below the 50 mark which separates growth from contraction since March so a return to positive territory will be welcomed by policymakers and governments who have pumped trillions of euros into the economy. European Union leaders agreed a 750 billion euro pandemic recovery fund on Tuesday and with European Central Bank monetary policy expected to stay ultra-loose for a long time, optimism about the year ahead improved. Markets are still expecting a V-shaped recovery - as are some economists - but while Friday’s data indicated a bounceback of sorts, it is unlikely to support those views.

French business activity rebounded far more than expected as a post-lockdown recovery in the service sector shifted up a gear, PMI data showed. Manufacturing activity in Germany stabilised, avoiding a contraction for the first time in 19 months, giving hope for a recovery from a long recession exacerbated by the pandemic. French business activity rebounded far more than expected in July as a post-lockdown recovery in the service sector shifted up a gear, a survey showed on Friday. Data compiler IHS Markit said its preliminary purchasing managers index jumped to 57.6 from 51.7 in June, hitting its highest level since January 2018. That easily beat economists’ average forecast for 53.5 in a Reuters poll and brought the index further away from 50-point level dividing an expansion from a contraction. French business activity has been recovering faster than expected since the country began emerging from a coronavirus lockdown on May 11.

The government put France under one of the strictest lockdowns in Europe in mid-March, shutting down vast swaths of the euro zone’s second-biggest economy and plunging the country into its worst recession since modern records began in 1948.

Separately, Italy’s bond market was poised for its best week in two months on Friday, even as borrowing costs edged up from 4-1/2 month lows set after this week’s agreement on a European Union recovery fund to support economies hit hard by the coronavirus. Bond yields across the euro zone rose after data showing euro zone business activity recovered in July and signs of rising US/China tensions prompted investors to take profits on this week’s price gains and yield falls. Italy’s 10-year bond yield rose 2 basis points to 1.07% , off Thursday’s low of around 1.04%. Still, Italian yields are down about 16 bps this week, set for their biggest weekly fall in two months.

Agencies