Gold Rally Continues on Ukraine, Iraq Tensions
Frankfurt (Aug 8) Gold prices continue to rise on Friday. In the European session, the spot price stands at $1318.06 an ounce. On the release front, it's a quiet day, with no major releases on the schedule. Geopolitical tensions in Ukraine and Iraq have worsened, boosting safe-haven demand.
After a slow start this week, gold has posted strong gains, rising about 2.5% since Monday. The precious metal has benefitted as the crises in Ukraine and Iraq worsen. The US has accused Russia of massing troops on its border with Ukraine, and tensions are high as the EU has slapped stronger sanctions on Russia, while Moscow has banned many food imports from the West in retaliation. In Iraq, Islamic State militants, who have captured large parts of Iraq, have attacked ethnic Kurds, which has resulted in a growing humanitarian crisis. On Thursday, US President Barak Obama authorized air strikes against the militants in order to protect the Kurds and safeguard US interests. The situation is fluid and could quickly destabilize.
As expected, the ECB maintained interest rates at 0.15%. ECB head Mario Draghi didn't add anything dramatic in his press conference, acknowledging that the Eurozone continues to grapple with weak growth and inflation. Draghi said that the ECB forecasts "moderate" improvement in growth and that interest rates will remain at current levels for the near future. On the inflation front, Draghi does not expect any improvement before 2015. With interest rates already at record lows, the ECB may be forced to resort to unconventional monetary tools if the situation worsens.
US Unemployment Claims dipped back below the 300 thousand level last week. The key indicator dropped to 289 thousand, beating the estimate of 305 thousand. The four-week claims average, which is less volatile than the weekly count, dipped to 293,500, its lowest level since February 2006. The stronger numbers point to increased hiring in response to stronger demand, which in turn has contributed to gains in income and stronger consumer spending. An improving job market is critical for economic growth, and the dollar has gained broad strength as key US data points upwards.
PMI releases are closely tracked by analysts, as they are important gauges of the strength of the manufacturing and services sectors. On Tuesday, ISM Non-manufacturing PMI looked sharp, rising to 58.7 points last month. This easily beat the estimate of 56.6, and was the index’s best showing since February 2011. This follows an excellent Manufacturing PMI reading last week, with the index climbing to 57.1 points, a three-year high. There was more positive news on Tuesday, as Factory Orders had an impressive July, gaining 1.1%. These solid numbers point to healthy expansion in the US manufacturing and services sectors, and has boosted the greenback against its major rivals.
Source: FXstreet
