Naomi Rovnick and Hudson Lockett
The spot gold price increased as much as 2 per cent to hit an all-time high of $1,980.57 a troy ounce on Tuesday morning in Asia, before falling back in the London session to $1,929. Silver also rose as much as 6.4 per cent to $26.19 an ounce during the Asian session, before tumbling to $23.93.
The volatility in precious metals reflected conflicting views about the US economy and monetary policy decisions ahead of the US Federal Reserve meeting on Wednesday.
While traders generally doubt the Fed will turn to negative interest rates, some believe it could adopt more unconventional measures such as yield curve control or setting upper limits on Treasury yields.
On Tuesday, analysts at Citi raised their price target for gold to $2,100.
Monica Defend, global head of research at Amundi, said the case for higher gold prices remained strong as the Fed was likely to signal at the July meeting that it would continue with its dovish monetary policy stance, despite being unlikely to make any big changes until at least September.
“Gold is highly sensitive to balance sheet expansion by the Fed,” Ms Defend said. “It is a good hedge against geopolitical risk and it looks to be an asset class to recommend at a time when interest rates are ultra low.”
But while the gold price has risen by about 12 per cent since early May, its rally paused on Tuesday as the dollar began recovering from a rout.
Traders have dumped the US currency in recent days because of a surge in coronavirus cases in sunbelt states and a stalemate between the White House and Congress on approving new stimulus for the struggling US economy.
The sell-off eased on Tuesday, however, as investors awaited the Fed’s latest policy decision and also digested a move in the dollar that Nadège Dufossé, head of cross-asset strategy at Candriam, described as “very rapid”, which she ascribed to lower liquidity and thin summer trading volumes.
The index tracking the dollar against a basket of trading partners’ currencies hit a two-year low of 93.492 in the Asian trading session before creeping up to 93.8 by late morning in London.
The euro fell from a two-year high reached on Monday, down 0.3 per cent at $1.1713. Emerging market currencies were also under pressure. The Russian rouble dropped 0.8 per cent to Rbs72.8 against the dollar and the South African rand fell 0.5 per cent to R16.5.
Ms Dufossé said the investment case for the dollar remained “bearish, on a one or two-year view”, particularly if the pandemic recedes in Europe and economies within the bloc continue to find a stable footing.
A survey earlier this week showed morale among German business executives had reached its highest level since coronavirus began earlier this year, exceeding economists’ expectations.
Investors turned cautious on equities on Tuesday afternoon. France’s CAC 40 index dropped 0.9 per cent and Germany’s DAX fell 0.5 per cent.
Futures tipped Wall Street’s S&P 500 to open 0.5 per cent lower when trading begins later, having earlier pointed towards weaker declines.