April 20, 2017 8:30 pm JST

Gold price edges up to five-month high, widens spread between platinum

Investors turn to safe haven amid rising geopolitical tensions

International tentions are pushing investors to the safe haven of gold while they have been reluctant to buy platinum due to the slowing economy in China, the main importer of the precious metal.

TOKYO/HONG KONG -- Rising tensions over North Korea and Syria are pushing nervous investors to place their money in the safe haven of gold, lifting the price of the precious metal and widening the spread between it and platinum.

Benchmark New York gold futures edged up to a five-month high on Tuesday and closed at $1,291.7 per troy ounce. Demand for gold, which is considered a safe haven asset, is increasing amid mounting geopolitical risks around the globe. Investors have become more nervous over recent weeks as U.S. President Donald Trump pledged to tackle the issue of North Korean nuclear tests, and after America launched surprise missile strikes in Syria and dropped a so-called "mother of all bombs" on an Islamic State stronghold in Afghanistan.

Market analyst Itsuo Toshima said demand for gold was robust even before the geopolitical tensions of recent weeks. "From Brexit to the Trump administration, a series of unexpected events across the world have been pushing up gold demand among investment funds," he said.

Capital Economics, led by chief commodities economist Caroline Bain, said in a report on Tuesday that precious metals prices had risen in the past month "as heightened geopolitical uncertainty buoyed demand for safe havens." The prices are now "comfortably above their 50-day moving average."

Amid soaring gold, however, platinum future prices remained below gold to close at $975.8 per troy ounce on Tuesday. This led to the spread between the two precious metals to widen further to $315.9 -- a 27% increase in the gap compared to the last trading day of 2016.

Platinum holds a high scarcity value and tends to be more expensive than gold as its global supply is limited to only 5% that of gold. Demand for platinum mostly comes from the industrial sector, where it is an important material used in catalysts for motor vehicles, for example.

Investors have been reluctant to buy platinum as future demand could weaken due to the slowing economy in China, which is the main import market for the precious metal. This, combined with robust demand for gold, has pushed the platinum price down to hover below gold since early 2015.

Most analysts predict the spread between the two precious metals will further widen as global uncertainties, including the looming French election, remain over the coming months.

According to the Commodity Futures Trading Commission in the U.S., net long positions in gold on the New York gold exchange had risen to 172,666 contracts by April 11, up 10% from a week before.

The expanding long position of gold, on the other hand, also suggests a possible change ahead. "Higher prices probably incentivize profit-taking," Capital Economics noted in its Tuesday report. "This suggests that prices could fall sharply if sentiment turns."

(Nikkei)

Nikkei staff writer Mariko Tai in Hong Kong contributed to this story.

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