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Low yields send investors scrambling for gold as other commodities suffer

Precious metals were the only gainers in the commodity complex in August as trade turmoil and the prospect of lower interest rates sent investors to traditional safe havens, including gold.

The S&P GSCI index of 24 commodities slid 1.5% last month, led by an 8.9% decline in the livestock subindex. The Petroleum index dropped 8.0%, while energy lost 7.5%.

The precious metals subindex rose 6.9% in August as the gold index advanced 6.4%, taking its gains this year to 19.4%. Gold closed at $1,523 per ounce on the Comex Exchange on Aug. 30, the last trading day of the month, up from $1,435.8 at the end of July.

The Federal Reserve will lower its key interest rate by 25 basis points at its next meeting on Sept. 18, according to more than 90% of futures traders using CME Group exchanges. It cut the target rate by 25 basis points to a range of 2% to 2.25% in July, the first reduction since 2008.

"Gold has continued to perform well in August, moving through and consolidating above the $1,500 per ounce level, as expectations deepened for further U.S. rate cuts to come," Matthew Piggott, head of metals and mining research at S&P Global Market Intelligence, said in an interview. "Additional support was provided by the plunge in U.S. 10 year Treasury yields below 2%. Gold could move sideways for some weeks now as further rate cuts are already priced in at this level."

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Trade uncertainty spiked in August as the trade war between the U.S. and China intensified with the imposition of fresh tariffs on both sides.

U.S. 10-year Treasury yields ended August at 1.51%, near a three-year low, and down from 2.02% at the end of July, while German bund yields fell further into negative territory, closing as low as minus 0.72% on Aug. 28. Even Italian 10-year yields fell below 1% in August, reaching 0.99% on Aug. 29, a record low.

"[G]old has been the star performer for several reasons, not least because of yields collapsing across the developed economies making the non-interest-bearing precious metal attractive on a relative basis," Fawad Razaqzada, a technical analyst at FOREX.com, said by e-mail. "On top of this, we had geopolitical risks on the ascendency with Brexit uncertainty, trade wars and tensions in the Middle East all increasing the appetite for safe haven gold and bonds."

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