LONDON — Gold took a breather on Friday after soaring 4% the previous day but was still set for its best week in four years after stock market turmoil sent investors into safe-haven assets.
Gold has benefited along with bonds and the Japanese yen from a rush to safety as investors worry about the health of some banks and the risk of a possible global recession.
They have been unnerved since the Bank of Japan (BoJ), followed by Sweden this week, introduced negative interest rates to try and stimulate growth and now worry that if economic conditions deteriorate sharply the US Federal Reserve might have to cut rates rather than raise them.
Bullion surged to a one-year high on Thursday, its biggest single-day percentage rally since 2013, and analysts and traders see more gains ahead if the weakness in equities persists.
European shares picked up on Friday, gaining 2%, but analysts said the turmoil was not over.
Spot gold was down 0.7% at $1,237.36/oz by 10.01am GMT, after rising to as high as $1,260.60 on Thursday, its highest since February last year.
US Federal Reserve Bank of New York president William Dudley is due to speak at 3pm GMT on Friday and investors will be watching for any clues on the outlook for monetary policy.
"We are seeing a bit of temporary relief in financial markets today," Danske Bank senior analyst Jens Pedersen said. "A lot will hinge on the Fed’s Dudley later today. Yesterday markets started to price in rate cuts in the US. The market mood is slightly better today but Dudley’s comments can quickly reverse that or support it."
While Fed chairwoman Janet Yellen said this week that the US economy as healthy and that interest rates would rise gradually, she did not rule out a cut in rates should conditions change.
Safe-haven assets have shone across the board in the past few days as equities plunged. US 10-year treasury yields hit their lowest since 2012 and the Japanese yen climbed to its highest in 15 months against the dollar, while money continued to flow into gold-backed exchange traded funds.
Spot gold has gained 5.5% this week, the biggest such gain since October 2011 and analysts say $1,300 could be its next target if financial turmoil continues.
"We are seeing a flight to quality," said a Sydney-based trader. "ETFs have been accumulating the metal for some time now. They are one of the main drivers (of the gold rally) along with the equity markets which are extremely soft."
US gold futures have risen 7% for the week, the sharpest jump since 2008.
Assets in SPDR Gold Trust, the world’s top gold exchange-traded fund (ETF), rose 2% on Thursday, the biggest inflow in two months.
Total holdings of the top eight gold ETFs have risen 3.8-million ounces so far this year, after three consecutive years of decline.
Silver was down 0.5% at $15.64/oz after touching $15.95 on Thursday, its highest since October.
Platinum was down 0.3% at $953.48/oz after reaching its highest since November on Thursday. Palladium was down 0.5% at $518.79.
