The gold swing

2 Sep

In 2013, Gold slumped by 28% due to equity surge and Fed’s diminishing pace of monetary stimulus. However, gold rebounded by 7.3% in 2014 as a result of geopolitical tensions prevailing in Middle East, East Europe and Iraq. After beating gains of other investment asset like commodities, equities and treasuries, it is again back to its status of being less favored by investors.

Gold price has remained confined in a small range due to lack of conviction in the yellow metal as hedge funds and money manager lower their bullish bets in gold by 24,182 contracts, to 92,734, the lowest since June as reported by CFTC.  US and Canada markets are closed on account of Labor Day holidays hinting the low market participant volumes.

The U.S. economy grew more than forecast in the second quarter, government data showed Aug. 28. Orders for durable goods jumped in July while consumer confidence climbed in August. The volumes of the SPDR Gold Trust holdings, the biggest ETP backed by the precious metal, plunged three times in last four weeks which also show continued lack of interest in the precious metals as investor opt for US equities that is marching to a fresh record.

Better US data shows continuing US economy’s recovery that could prompt FED to increase rates in near future. Higher interest rates can make gold a lesser attractive investment option against treasury.

However the lowering tensions between Russia and Ukraine have escalated with hundreds of Russian soldiers entering Ukraine and Ukraine blaming Russia for launching a fresh military attack across its eastern border.  US is working closely with EU to keep their Russian sanction programs in place. This may generate fresh investor interest in gold for a hedge against political instability.

Thus, gold prices seem to remain range bound with upper side capped by the further march of US equities to a record high while the lower side restricted by the falling Treasury yields. However the unresolved Russia – Ukraine geopolitical tension and coming Indian Festive season can play an important role to lift the gold price.

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