Precious Metals

Gold took a big jump at the end of last week, spurred by further tension in Iraq and comments from Federal Reserve Chairwoman Janet Yellen.

A week and a half ago, gold reached a two-week high as conflict raged in Iraq. Though investors were pleased with the jump, some were skeptical about whether the metal’s good fortune would continue. 

For one, Robin Bhar, head of metals research at Societe General (EPA:GLE), cautioned that the June Federal Open Market Committee (FOMC) meeting, which took place last week, might put a damper on the yellow metal. He told Kitco News, “[g]old has support from geopolitical issues, but any macroeconomic improvement could cap rallies. So I see gold sideways again. I don’t see the geopolitical news as a catalyst out of $1,250-$1,275.”

Bhar turned out to be both correct and incorrect. Contrary to his prediction, gold has gone way up instead of sideways — last Thursday, gold futures rose as high as $1,322 per ounce, settling at $1,314.10, while spot gold closed at $1,314. However, as Bhar suspected, geopolitical news alone couldn’t push the yellow metal’s price higher.

That said, it was certainly a contributing factor. The metal’s safe-haven appeal intensified Thursday when US President Barack Obama announced plans to deploy up to 300 military advisers over to Iraq “to help its struggling security forces fend off a wave of Sunni militants who have overrun large parts of the country,” as per The New York Times.

Also pushing gold up, according to Money Morning, was the dollar’s fall to its lowest level in almost four weeks. That happened on the back of news out of the FOMC meeting, at which the Fed “suggested a more aggressive pace of interest rate increases starting next year,” but “lowered projections for the long-run target interest rate.” That, the news outlet states, means interest rates won’t rise in the near future, and, when they do, “will still sit at low levels.”

The Fed also said it will reduce its bond buying to $35 billion a month until the end of July. That’s the first time the amount it’s committed to buying is lower than when it put QE3 in place.

Of course, gold’s fresh gains again raise the question of whether its positive run will continue. Bhar doesn’t seem to have weighed in this time, but others definitely have. UBS strategist Edel Tully is one — he told Reuters on Friday that “[a]t this point, gold appears overdone. Strategic buyers are remaining on the sidelines; this is a move that is currently dominated by short-term traders.”

At least for now, however, gold seems to be doing alright. On Friday, spot gold was down only slightly, at $1,309.60, while gold futures for August delivery were down 0.3 percent, at $1,310.


Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article. 

Related reading: 

Two-week High for Gold on Iraq Turmoil


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