STT State Street Corporation

By Joe Wallace 

Gold prices are trading close to their highest level in six weeks, as investors remain cautious about the world economy and geopolitics despite record highs in the U.S. stock market.

Gold futures rose 0.3% to $1,485.60 a troy ounce on Monday in New York, extending their advance in December to 1.4%. The haven metal is on course to rise 16% over the course of 2019, which would be its biggest one-year rally since 2010.

"The fact that investors are still holding a decent chunk of gold gives you a good feeling as to how they are literally hedging their bets," said Altaf Kassam, head of investment strategy for State Street Global Advisors in Europe, the Middle East and Africa. "Gold is definitely not looking like a bad place to store some value or have a hedge."

Gold prices have kept climbing in recent weeks even though improving economic data and President Trump's provisional trade deal with China have pushed U.S. stocks to a series of all-time highs. The yield on 10-year U.S. Treasury notes has also risen, from 1.782% at the start of December to 1.916% Monday. Higher bond yields typically make gold, which pays no interest, less attractive for investors to own.

Gold's resilience shows that the limited trade pact -- which Washington and Beijing haven't so far signed -- hasn't dispelled concerns about the outlook for global growth. China's Finance Ministry said Monday that Beijing would cut import tariffs on a range of goods in 2020, as the two sides attempt to complete their so-called phase-one agreement.

"Worries about the state of geopolitics and the world in general haven't really gone away completely," said Rhona O'Connell, head of market analysis for EMEA and Asia at INTL FCStone. "There is still some concern about the fact the deal is yet to be signed," she said.

Ms. O'Connell thinks gold prices are unlikely to fall significantly in the coming months because speculative investors who made short-term bets on the metal have already exited the market. That has left a "bedrock" of fund managers who intend to own gold for a longer period, she said, adding that demand for physical gold could rise ahead of Lunar New Year on Jan. 25.

David Govett, head of precious metals at London-based brokerage Marex Spectron, agrees. "The market is happily long," he said. "It's proper money in there."

Money managers are still wagering that gold prices will rise, though they have trimmed the size of these bets since late September. As of Dec. 17, investors held 219,268 more long contracts than short contracts, the Commodity Futures Trading Commission said on Friday, up from 56,949 at the start of 2019.

Other precious metals are also having a strong end to the year. Silver rose 0.8% to $17.36 a troy ounce on Monday, while palladium has surged 10% in the fourth quarter.

Still, Mr. Kassam said that accelerating global growth means precious metals are unlikely to rise much further in 2020, barring an unexpected spike in inflation or weakening in the U.S. economy. State Street's absolute-return strategy recently sold some gold futures and bought commodities such as oil and copper, which Mr. Kassam said are more likely to benefit if the world economy picks up speed next year.

Elsewhere in commodity markets on Monday, natural-gas futures dropped 4.6% to $2.22 a million British thermal units. The decline extends a recent slump and comes after Russia and Ukraine clinched a transit agreement for gas deliveries into Europe, warding off disruptions in the New Year.

U.S. crude-oil futures fell 0.4% to $60.23 a barrel, and copper futures fell 0.7% to $2.81 a pound.

Write to Joe Wallace at Joe.Wallace@wsj.com

(END) Dow Jones Newswires

December 23, 2019 10:17 ET (15:17 GMT)

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