Gold's explosive start to 2016 has lifted prices to the highest level in a year as investors flee a bear market in global stocks, a weakening US dollar and the fallout from the spread of negative interest rates.
"It's Friday and fear is in control of markets," ANZ Banking Group said in a note to clients. Bullion is benefiting from "rising safe-haven buying, making it the best performing commodity in 2016".
Gold for immediate delivery traded at US$1236.59 an ounce in Singapore from US$1246.70 on Thursday, when the metal surged to US$1263.48, the highest since February 2015.
This week bullion has advanced 5.4 per cent, heading for the biggest gain since October 2011. It's up 17 per cent this year and a close above US$1261.32 would put it in bull-market territory after bottoming in December.
Investors have bolted back to gold after three years of losses as a souring global economy, including in China, pummels stock prices. The turbulence has eroded expectations that the Federal Reserve will raise interest rates this year, hurting the US dollar and adding to bullion's allure.
Central bankers from Tokyo to Stockholm have embraced the notion of negative rates and even Fed chairwoman Janet Yellen said on Thursday the US central bank is taking another look at the tool, if the economy falters.
"Lower interest rates reduce the opportunity cost of holding an asset like gold that pays no income -- indeed, negative interest rates remove that opportunity cost completely," said Julian Jessop, head of commodities research at Capital Economics.
"What's more, the environment of economic and financial problems that justify negative interest rates are also ones in which safe-haven demand for gold is likely to be high."
Lower interest rates reduce the opportunity cost of holding an asset like gold that pays no income -- indeed, negative interest rates remove that opportunity cost completely.
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Gold-related equities rallied yesterday as a gauge of global equities fell. Shares of Newcrest Mining, Australia's biggest producer, climbed as much as 5.6 per cent in Sydney, and are about 11 per cent higher this week.
Zijin Mining Group surged as much as 11 per cent in Hong Kong.
Investors have poured funds into bullion-backed exchange-traded products this year, reversing a tide that saw assets shrink for three straight years. The holdings increased 1 per cent to 1587.5 tonnes on Thursday, the highest level since July, according to data compiled by Bloomberg. They've expanded 8.6 per cent this year.
Since 2010, the European Central Bank, the Bank of Japan and others have cut their rates below zero to provide their economies additional stimulus. While in theory the approach could bolster growth by charging lenders fees for parking money at central banks, investors have worried it may rattle money markets. On Thursday, Sweden's central bank cut rates to a record low of minus 0.50 per cent.
Gold's ascent has been so rapid that analysts may be forced to reassess their targets for the year. "Our existing end-2016 forecast for the gold price is $1250 per ounce," Capital Economics's Jessop said on Thursday. "We will probably be revising it up."