Gold up on global worries
Gold has become the go-to commodity in the opening days of 2019 as investors contemplate a deteriorating worldwide outlook and factor in fewer, if any, US Federal Reserve interest rate hikes this year.
On Thursday, a gauge of US manufacturing sank by the most since the 2008 recession a day after Apple cut its revenue outlook, fuelling concern the trade war with China is taking a bigger-than-expected toll on growth.
Gold pierced the $1,300 level this week to extend a new-year rally. Investors flocked to the metal with global equities in retreat, signs of a slowdown stacking up, and the oldest of havens showing its mettle as exchange-traded funds draw in increased flows. Futures spiked to $1,300.40 an ounce on the Comex, the highest price since June, and were at $1,296.50 in London. Spot prices were not far behind, hitting as much as $1,298.60.
Kevin Hassett, the chair of the White House Council of Economic Advisers, said in an interview with CNN: "It's not going to be just Apple. There are a heck of a lot of US companies that have sales in China that are going to be watching their earnings being downgraded until we get a deal with China."
Hassett argued that it is a softer economy in China that is cutting into US companies' sales there and that economic pain gives President Donald Trump leverage in trade negotiations. "That puts a lot of pressure on China to make a deal," he said. In the long run, US companies should benefit despite the short-term damage to their bottom line, he added.
"If we have a successful negotiation with China then Apple's sales and everybody else's sales will recover," he said, predicting that US economic growth would continue to be strong.
Apple shares fell sharply this week after it said its sales would be about $84bn (R1.1-trillion) in the quarter ended December 29, down from earlier estimates of $89bn-$93bn. It was the first time the company cut its revenue outlook in nearly two decades.
Apple's announcement "is something that one should expect. The Chinese economy is slowing in a way that I haven't seen in a decade," Hassett said. "That's going to be bad" for US companies that have a lot of business in China.
The partial US government shutdown has also spurred a risk-off mood.
"This rally in gold is based on investors increasingly realising that gold is 'safe money'," said Rainer Michael Preiss, an executive director at Taurus Wealth Advisors. Preiss cited the potential downturn in the global economy, possible central bank policy mistakes, and the rising US debt burden among factors spurring demand.
Earlier this week, a report showed a contraction in China's manufacturing, and global gold-backed exchange-traded fund holdings added 67 tons last month.
The rally past $1,300 is considered an important psychological hurdle, said George Gero at RBC Wealth Management. "The market has major worries about the economy, the stock market and political events . If investors keep looking for havens, the price could reach $1,350," he said.