Gold hits record high on banking woes, Fed bets and trade tensions

(Bloomberg)– Gold hit a record high, boosted by concerns about credit quality in the economy, bets that the Federal Reserve will continue monetary easing and intensifying friction between the United States and China.

Bullion is up more than 7% so far this week and peaked above $4,300 an ounce on Thursday, extending a dizzying rally that began in August. The buying frenzy spread to other precious metals, with silver hitting a record high above $54.

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Broader markets were rattled when two regional lenders revealed loan problems involving allegations of fraud, heightening concerns that new cracks were emerging in borrowers’ creditworthiness. This has boosted demand for safe haven assets such as gold and silver.

Traders are also betting on at least one outsized cut in U.S. rates by the end of the year, while Fed Chairman Jerome Powell signaled this week that the central bank was on track to make another quarter-point cut this month.

The ongoing U.S. government shutdown has delayed the release of key data, but any resolution is expected to trigger a flood of information on the changing state of the economy, which could provide evidence of weakness to support further rate cuts. This would benefit bullion as it does not earn interest.

Gold was also supported by concerns over a resurgence in trade frictions, notably between China and the United States.

The precious metal has surged more than 60% this year, buoyed by central bank buying, inflows into exchange-traded funds and growing demand for safe-haven assets in the face of geopolitical and trade tensions, rising fiscal and debt levels and threats to the Fed’s independence.

“Nothing has changed for me: For the last $2,000 an ounce, we have been bullish and everything that got us here is still bullish,” Michael Widmer, head of metals research at Bank of America Corp., said in an interview on Bloomberg Television. Nevertheless, “ETF inflows last month increased by 880% year-on-year, and this is ultimately a concern” because it is unsustainable.

The silver market, meanwhile, has been grappling with a lack of liquidity in London, sparking a global hunt for the metal and pushing benchmark prices to surge above futures contracts in New York.

Over the past week, more than 15 million ounces of silver have been withdrawn from warehouses linked to the Comex futures exchange in New York. Much of that will likely be headed to London, where it should help ease market tensions – although strong ETF inflows of nearly 11 million ounces during this period have further eroded London stocks.