Gold rallied again on Monday as violence in the Ukraine spilled over into war. With Ukraine forces continuing their campaign to deflate pro-Russian separatists, gold ended trading on Monday $1309.70 an ounce.
Ukraine and US diplomats have described the conflict in eastern Ukraine as “war,” and former US ambassador to Russia, Michael McFaul voiced warnings that the problem could result in a “full-fledged invasion by Russian troops.”
Poor economic data in China and the European Union is also lending support to gold bulls and the rally is expected to continue for the rest of the week despite positive data from the non-farm payroll in the US last Friday.
The contraction in the Chinese manufacturing sector is a growing concern after the People’s Republic fell short of targets for a fourth consecutive month raising growing the world’s second largest economy is suffering from weakened demand.
The Central Bank of the People’s Republic face an uphill task after default payments of metal ores earlier this year exposed frailties in the country’s unregulated shadow banking system. Policymakers took the decision to deflate the yuan, but in doing so have slowed down the progress of the economy.
The financial sector in the EU is not fairing much better. The European Commission in Brussels revised the outlook for economic growth to just 1.2%, down from 1.8% they forecast in February. This will add further pressure on the ECB to introduce quantitative easing to try and boost the Euro.
Safe haven gold
With so many negative influences affecting the stock market, traders have no option other than to turn to bullion safe havens. Gold purchases on the futures market is particularly favoured as gold exchange-traded funds continued to show bearish sentiment in favour of physical gold.
Early trading in the Asian market on Tuesday morning favours positive US data and supports Wall Street’s late sell-off on Monday evening. Prices should remain flat for the rest of the day as traders wait to anticipate how events will unfold in Eastern Europe.
The demand for physical gold among consumers has fallen dramatically this year since the yellow metal was pushed beyond the $1300 an ounce psychological key point, but investors may be persuaded to shell out if the Ukraine crisis continues to escalate.
With Russian forces stationed on the eastern border with Ukraine, Russian Premier Vladimir Putin has already shown an intent that he will intervene with military action if necessary. With Ukraine in the throes of a civil war, the Kiev government may have to relent and hand over the eastern sector to prevent World War 3.
As things stand, this may be the last opportunity consumers will have to purchase gold bullion for around $1300 an ounce. At the time of writing (0800GMT), spot gold was weighing in at $1308.90, and with Ukraine leaders hinting they will not back down to pro-Russia militants, the likelihood of gold prices falling back below key indicators appears unlikely.