Insurgency pushes gold to three-week high

The ISIS insurgency in Iraq is certainly the main factor contributing to gold’s three-week high that we see this morning. The ongoing turmoil in the Middle East has renewed gold’s safe-haven appeal amongst speculators, the metal is often seen as an asset to turn to during times of geopolitical stability.

After two weeks of declines, the latest COT data released by the Commodity Futures Trading Commission showed the bullish positions on gold futures speculators rose last week. The increase in bullish bets in gold futures and options was the first increase in five weeks. The rally in the gold price may have meant bullish bets were increased, however the rally came on light volume in the futures markets.

The gold price will remain in this price range whilst governments struggle to contain Sunni insurgents, however all upward moves will be dampened ahead of this week’s FOMC meeting and subsequent announcement. Market observers will be looking out for any mention or action regarding hiking interest rates.

The temporary rise in the gold price

The price of gold has climbed 6.7% this year primarily on the back of tensions in Ukraine. As violence and heated political discussions appeared to subside, the gold price suffered as a result. The yellow metal is struggling to find support, this year, from factors that have previously enabled it rise to new highs. Whilst these factors are very much still in existence it is the lack of change in the overall economic environment that has led to gold losing some of its shine in the speculators’ portfolios.

So, when Ukraine no longer looked like it was going to result in the next Cold War, the yellow metal faltered, until the next potential disaster showed its head, and here we are discussing the three-week high in the gold price.

It is important to make clear at this point that tensions in Ukraine have effectively climbed a few levels, as top-palladium producer Russia this morning threatened to turn off gas supplies to Ukraine amid rising tensions following the shooting down of a plane by pro-Russian militants. The tensions have not decreased in the former-Soviet Union country and relations have not eased. This is case-in-point that gold price rises on the back of geopolitical tensions are not sustainable.

In reference to the climbing gold price following this ISIS insurgency, The Sydney Morning Herald this morning writes that the ‘smart money’ is not heading into gold but instead is ‘about to head in the opposite direction’ as the rising gold price is about to prompt a sell-off in ‘overly exuberant markets.’

Retail demand in India awaits changes

Retail demand in India continues to prevent local gold prices rising in tandem with international gold prices. Earlier last week the Reserve Bank of India announced a change in gold import restrictions to allow ‘star and premier export houses’ to trade in the gold, the news sent the spot gold premium from $30 to $15.

It is widely rumoured that the newly elected government will announced a 2-4% cut in gold import duty in the coming month of July. This is likely to temporarily send premiums crashing once again, however it will no doubt lead to a surge in imports as gold artisans are able to work with gold at a slightly more affordable rate.

And the other metals…

Despite indications from the leader of South Africa’s AMCU Union that a deal between the top three platinum mines was imminent, both platinum and palladium have climbed around 1 percent this morning. Any deal reached between the PGM producers and unions will prompt further sharp declines (as seen last week) as this will relieve supply issues which have increased in concern over the last five months.

On the back of gold’s performance silver has climbed one percent, to its highest in over a month. This climb is just half of that seen for gold.

About the Author

Jan Skoyles is Head of Research at The Real Asset Company, a platform for secure and efficient gold investment.