Gold has traded today in New York from a low just under $1415 to a high just over $1435. So far this month it is up by some 8 percent — its biggest monthly gain since January 2012.
In recent days, gold’s strength has reflected Syrian-inspired safe haven demand with an important assist from technical and momentum traders as shorts covered and some longs increased their bullish bets.
The magnitude of the move is an indicator of market tightness and confirmation that much physical gold has moved from weak hands in Western markets to strong hands in Eastern markets.
In the past, safe-haven demand inspired by geopolitical events and anxieties has tended to evaporate — unless the crisis or events that triggered gold’s advance continue to worsen.
So, today, traders reevaluated the risks that the Syrian situation would mushroom into a wider conflagration . . . and some decided it was a good time to take some profits near the highs of the day.
When missiles actually start flying gold should again perform its safe-haven function and prices could again pop. But if gold prices are to continue their upward march with brio the market will need more than a one-off short-lived military action.
Of course, more could come a spreading conflict that draws in some combination of Israel, Hezbollah, Iran, Saudi Arabia and the Gulf states, Russia, and American “boots of the ground.” Let’s hope not!
But more could come from weaker-than-hoped for U.S. economic indicators that point to a worsening economy (like today’s fall in pending home sales) and diminish expectations that Fed tapering is around the corner.
More could come from an improving technical picture that triggers buying from program traders,s short-term speculators, and investors worried that they will be late to the game.
More could come from the approaching autumn budget and spending battles in Washington as the Federal debt ceiling draws near, weakening the U.S. dollar, and threatening a downgrading of U.S. sovereign debt by the rating agencies.
More could also come from an increasingly likely South African gold-miners strike and the possibility of supply disruptions from that country later this year.
