Gold and the return of global turmoil
By: Clif Droke
Friday, 30 August 2013
The last several weeks have seen a return of all the ingredients for a gold rally, from an “oversold” technical condition which sparked a short-covering rally to a spike in Treasury yields which caused investors to look for safe haven investments. Gold has benefited from the rising interest rates as well as the weakness in the U.S. dollar. Now a new set of factors is playing into gold’s favor….
I’m referring of course to the return of global financial market and political turmoil. From the fear of a tightening monetary policy in the U.S. to the currency slump in Asia to the military unrest in Syria and Egypt, investors are once again in a desperate search for a financial safe haven to park their capital until the volatility dies down. Gold has been the natural beneficiary of the world’s safe haven money flows, particularly among foreign investors. There are signs, however, that U.S. investors are about to join the crowd in jumping back onto the gold bandwagon.
In a note to its investors on Monday, Eugen Weinberg of Commerzbank made reference to the return of global turmoil and its effects on precious metal prices when he wrote:
“[Gold] is clearly finding support from the geopolitical risks in the Middle East and North Africa, amongst other things. “Speculative financial investors have contributed to the rise in the price of gold and silver; they expanded their net long positions in gold by 28% to a three-week high of 48.4 thousand contracts in the week to 20 August. What is more, gold ETFs tracked by Bloomberg saw inflows of 4.7 tons last Friday, the highest to have been recorded since the end of November 2012. On balance, there have thus been no further outflows from the gold ETFs in the past two weeks, so investment demand appears to be gradually picking up again. Net long positions in silver were increased by 41% to a six-month high of 16.2 thousand contracts.”
Meanwhile on the technical front, gold overcame a major psychological hurdle this week by closing above the widely watched $1,400 level. Now that this benchmark chart resistance has been overcome, gold will test the resistance from sellers at the nearby $1,440-$1,450 benchmark where the next line of overhead supply begins.