A week in gold: Six month high as Ukraine picture worsens
London (Mar 15) Gold hit its best price since September last year as tension in the Ukraine mounted, overshadowing the possibility that the US Federal Reserve will taper again when it meets next week.
This weekend sees the referendum in Crimea over whether it should secede from Ukraine, with the outcome already determined by the questions and the pro-Russian government to be a yes vote said observers
More Russian military activity near the Ukraine border and moves by the West to push for sanctions have seen gold recover a good chunk of the safe haven appeal that was lost last year when the US economy seemed set for a sustained recovery.
There is an expectation the West will impose sanctions, possibly as early as Monday, if the Crimea is annexed by Russia.
Russia has suggested it will dump its holding of US treasury bonds if this happens, which traders said had encouraged investors to take out some modest insurance in the shape of gold just in case.
Gold fell 28% last year, but the price has already rallied by more than 14% since the start of January, with the slowdown in selling through exchange traded funds or ETFs another sign of the improvement in the mood.
Having seen steady outflows of the metal all through 2013, the trend has reversed in recent weeks.
SPDR Trust, the largest of the gold-backed saw an inflow of 7.50 tonnes to 812.70 tonnes on Monday for instance, while fund manager Blackrock reported that ETFs overall saw inflows of US$500mln in February, compared to outflows in each of the 13 previous months.
UBS said the mood swing among ETF investors explained why gold was holding its current level, in spite of easing physical demand.
Many brokers are unconvinced it can hold the current level on fundamentals if the tension in Eastern Europe eases, though chartists this week suggested the price could regain the US$1,400 mark again.
Goldman Sachs was among the most bearish onf gold at the start of 2014 and this week predicted that the recent rally would not last and it would fall back to US$1,000.
Its predictions were based around the US economy recovering and the Fed steadily cutting back on its loose money polices.
The Open Markets Committee meets again next week for its monthly get together. The last two meetings have each seen a $10bn cut in the monthly bond-buying programme, which is now running at US$65bn per month, and economists sees this monthly reduction continuing unless the US economy really hits turbulence.
Spot gold was trading at US$1,385 Friday as US markets got underway helped by another wobble for the US dollar and fears over China’s financial position.
That sets the metal on course for its sixth straight week of gains, said Commerzbank, its best run since 2011 when the metal went on to achieve its all-time high of US$1,921 in September.
Source: Proactive Investors
