Gold Gains as Investors Seek Safety Amid Ukraine, Middle East Crises
San Franciso (July 25) Gold prices rebounded Friday as investors stepped in to scoop up the metal amid conflicts in Ukraine and the Middle East.
Gold for August delivery, the most actively traded contract, was up $4.20, or 0.3%, to $1,295 a troy ounce on the Comex division of the New York Mercantile Exchange. The rally comes after gold prices fell 1.1% on Thursday to settle below the psychologically important $1,300-an-ounce level for the first time since July 16.
U.S. defense and diplomatic officials said Thursday that Russia is firing artillery across its border at Ukrainian military positions, stepping up an already tense confrontation between the West and Moscow. Fighting between Israel and Hamas, meanwhile, showed little sign of abating, despite a renewed U.S. push for a truce in the conflicts.
The geopolitical instability helped buoy prices for gold, which some investors use to hedge their portfolios in uncertain times, believing the metal will hold its value better than other assets. Still, analysts believe the metal's gains will be temporary as the likelihood of higher U.S. interest rates next year remains a threat. The Federal Open Market Committee is meeting next week to gauge the U.S. recovery and to discuss the central bank's next move.
The conflicts "are giving gold some knee-jerk buying from time to time, but it doesn't last very long," said Thomas Capalbo, a broker at Newedge. "The possibility of higher rates next year is in the driver's seat for the metal right now."
Gold is seen as a less attractive alternative in times of higher interest rates, as it often costs money to hold and struggles to compete with yield-bearing investments.
Prices for the metal have also been stymied by a lack of physical demand out of China, the world's biggest gold buyer. The China Gold Association on Thursday reported a 19% drop in Chinese gold demand in the first half of the year.
The data worried gold traders because it could signal fewer gold purchases down the road as Chinese investors opt to hold other haven assets.
In addition, the Bombay Bullion Association said India's imports of the precious metal likely fell to 30 to 40 metric tons in July from about 100 tons in June. Shipments to India flared up in June after the government widened import channels by allowing private trading companies to import bullion in addition to banks and state-run trading agencies. India is the second-largest gold buyer in the world.
"In our opinion, the weak gold demand figures to come out of Asia...preclude any rise in gold prices," Commerzbank analysts said in a note to investors.
Source: WSJ
