June 28th Weekly Gold Market Update

The gold market has been busy, with the turbulent international situation bringing major swings over the last week. Overall there’s been a modest drop – the spot price finished at $1,315.10, down $1.50 on the same time last week. That came as a surprise because the first half of the week saw a steady gain, with a jump of close to $4 on Monday and a gentler rise to Wednesday’s peak of $1322.20. By Thursday morning that had crashed back to $1316.10 before rallying yesterday, followed by another fall to a nine-day low. Overall the market remains healthy, however, with a gain per ounce of over $70 since the start of the month and a year-to-date rise of over 9 per cent.

The main influences over the week have been domestic interest rates, the ongoing trouble in Ukraine and the escalating situation in Iraq. The Federal Reserve is still keeping interest rates down, and that’s good news for equities – stock values are still doing amazingly well considering the constantly shrinking growth predictions. Overall the US economy looks to be expanding, with unemployment figures down yet again, and that reduces the attractiveness of gold as a hedge.

The dispute between Ukraine and Russia has been affecting gold prices for months now – Russia is a major gold producer and international sanctions affect their ability to extract and sell, giving the spot price a nudge upwards. Things have been relatively quiet for a few weeks but this week there’s been another surge of violence, and that’s likely to have contributed to gold’s rise up to Wednesday. There’s no resolution to the crisis in sight so that upward pressure should keep going for a while yet.

The big political upset over the last few days has been the continuing collapse of Iraq. That’s sent ripples of unease through the Middle East, traditionally a gold-buying region. The situation is very fluid right now, with worries about oil prices and the role of Iran pushing gold in unpredictable directions. If the oilfields stay secure and crude prices stay low that’s likely to push gold down.

There’s been uncertainty in major producer South Africa over the last five months as many workers – including miners – walked out over pay and conditions. That threat to gold supply is now receding after a pay deal was agreed with mine owners, and output now looks secure for the rest of the year. Combined with falling demand in the important Chinese market that means demand is likely to lag behind output, putting more downward pressure on prices.

The outlook for gold isn’t clear right now. Recent highs have been driven by political uncertainty but the generally buoyant economic situation doesn’t favor hedge investments like precious metals. While the recovery isn’t solid there isn’t a compelling reason to switch to safe investments right now. Many analysts think the recent sharp rises in gold were driven by short covering as speculators bought back in, rather than by strategic investments. Overall we’d say it’s a good time to hold on to what gold you have, and be ready to buy if the price dips.

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