Gold spot prices started off with another tug-o-war this week. Early trading in the Far East on Monday saw the yellow metal drop 0.8%, only for traders in New York to push spot gold back up 0.2% to $1340.90 (1700 GMT).
Investors in Asia dumped gold bullion following the strong US job data published on Friday, but with tensions mounting in Ukraine, European and US traders are not taking any risks and turned to the safe-haven of precious metals.
There had been fears of an economic slow-down in the Far East following poor export results in China, but signs the US economy is accelerating despite the bad weather has given traders more confidence in the Eastern market.
Market sentiment with China
The blame for the slow-down in China was pinned on the break for the Lunar New Year celebrations, but now the pistons are turning in the People’s Republic again, traders have put their faith in the world’s second largest economy to pick up the pace again.
Although the central banks in the People’s Republic remains the world’s top consumer of gold, demand for physical gold has died out in the Far East following the gradual rise in prices since the turn of the year.
The growing concern over possible military action in the Crimean peninsula has kept gold trading at a profit whilst European equities have been ditched. Whilst diplomatic tension remains between the West and Russia, it is doubtful that gold prices will fall.
As a consequence of geopolitical pressure, money managers have raised their outlook on gold futures for the fourth consecutive week. Sanctions against Russia, the world’s leading producer of gold, together with miner strikes in South Africa, the second largest producer, is likely to have a knock-on effect for demand.
For the moment however, it is events in Crimea that are most influencing the stock market. Reports of shots being fired by Russian troops panicked investors into buying precious metals, highlighting the nervousness amongst investment banks.
It will be interesting to see how traders in the Far East react to the Ukraine crisis when the markets open in the Shanghai Gold Exchange on Tuesday morning. Is there a private struggle for gold prices between East and West brewing?
Ordinarily, it would be an easy decision for investors to buy gold right now. With string signs the global economy is turning around, gold spot prices would fall giving investors an ideal opportunity to purchase bullion for attractive prices.
The tension between Russian and the US diplomats has been pulled tighter now US Secretary of State John Kerry declined an invitation to meet with Russian President Vladimir Putin in Moscow. With the threat of military action growing, the acquisition of gold at any price could be a necessity.
The quandary for casual investors is whether to purchase gold at its current prices or wait until a resolution is reached in Ukraine. Once the crises eases, gold prices are expected to fall, but if Putin decides to exert his power, gold spot prices may never fall this low again.