Gold Weekly Review: Geopolitical boost proves short-lived
London (July 19) Bears were in the ascendancy again last week as the latest testimony from the Fed chair Jamey Yellen was interpreted as moving forward the possibility of a rise in US interest rates.
The shooting down of a Malaysian airliner over Ukraine on Thursday and the ground invasion of Gaza by Israel gave the price a short upward injection, but the gains were reversed on Friday.
Having already ratcheted up sanctions on Thursday against some of the Russian president’s key institutional backers, such as oil giant Rosneft, the possibility of even stronger action from the US and Europe briefly boosted safe haven demand for gold.
Comments from Vladimir Putin that were seemingly pushing towards a political settlement eased some of the concerns.
Geopolitical uncertainty of has been a feature for gold this year, helping the price to rise by more than 9%, though brokers were sceptical over how much long term benefit the uncertainty in Ukraine, Israel and also Iraq might generate for the metal.
Goldman Sachs has been one of the most bearish commentators on the prospects for gold in 2014 and Jeffrey Currie, its head of global commodities research, this week repeated his forecast that the spot price will fall to US$1,050 by the end of the year.
He expects gold to drift lower once confidence in the US economy recovery grows and inflation remains subdued.
Societe Generale also predicted the metal would move lower by the end of the year, and forecast a price of US$1,245 in the final three months of the year.
UBS, meanwhile, pointed out that so far this year safe-haven-driven rallies have been short-lived.
While both the Ukraine and Iraqi crises had encouraged some buying the impact had been “inconsistent and moderate," it said.
Another feature in 2014 has been the slowdown in selling through exchange traded funds (ETFs), but after a strong start to July there was a reverse this week with SPDR Trust, the largest of the gold-backed ETFs registering its largest two-day fall since early May.
The comments from the Federal Reserve chairman this week and the possibility of more tightening by the US central bank were the cause said traders.
While Yellen said there was still slack in the economy with wage pressure weak, she added that if the jobs numbers continued to rise strongly or wage inflation takes off rates could rise faster than expected.
The current consensus is for an increase in the second half of 2015, with the quantitative easing programme to end around October of this year, but any clear indication it will be earlier that would be bad for the metal.
Rising interest rates would boost the US dollar and bond yields, both of which traditionally move counter to the gold price.
Source: ProactiveInvestors.UK
