A week in gold: Banking crisis talk lifts rising streak to six weeks
London (July 12) Few picked gold as a top performer at the start of the year, but the metal was on course for its sixth straight weekly gain an hour into trading Friday.
Into the second half of the year gold has now rebounded by 11%, defying those who predicted it was a cert to add to 2013’s 28% fall.
One reason for gold’s recovery has been that the world has remained an unpredictable and dangerous place.
Having initially risen with the outbreak of near civil war in Ukraine, gold has again been seen as a safe haven from the Sunni/Islamic uprising in the north of Iraq and the possibility that arose this week that Israel may invade Gaza.
The geopolitical uncertainty had a new financial addition with the threat of a banking crisis re-emerging in Europe as shares in Portugal’s Banco Espirito Santo (BES) were suspended after one of the subsidiaries of the group that controls the bank missed debt repayments.
Reassuring statements from BES Friday slightly eased the situation, but it was a reminder that the economic recoveries in many countries remain fragile at best.
US Federal Reserve chairwoman had earlier made a similar point when she said that US interest rates would remain low for a considerable period. Minutes from that meeting this week confirmed most other members of the Fed’s committees shared the benign view.
Gold also got a boost, albeit possibly only short term, by the decision of the new Indian government not to cut import duty on teh metal in its first budget.
Reports from India said that jewellers had run down stocks ahead of the decision and were caught out by the no change stance, giving a short term boost to the physical gold premium in the country.
Consumer demand in the country has been curbed by government efforts to boost its trade deficit, while the recent weakness in the yuan has choked off Chinese buying.
Traders said it remained to be seen if gold can maintain its recent strength if political tensions ease, but Bank of America Merrill Lynch this week raised its 2014 gold price forecast to $1,308 per ounce from $1,298.
It cited a lack of mine supply growth and steady demand for the yellow metal from emerging markets and both of those could be issues for the long term as well.
Source: ProactiveInvestors
