Heightened tensions between Russia and the West, together with continued violence in the Middle-East is holding gold prices above the $1300 mark despite a stronger dollar. Strong US economic data is raising optimism for the health of the global economy, but warring political factors is dampening the enthusiasm of investors.
As a result of geo-political crisis’, gold still has plenty of safe haven appeal. The situation in Ukraine is getting worse as pro-Russia rebels refuse to allow investigators to examine the crash site of the fatal passenger plane MH-17 which was shot down almost two weeks ago.
UK newspaper, The Telegraph reports that Western governments plan to take tough action against Russian Premier, Vladimir Putin after intense talks over weekend were “deeply pessimistic.”
Revised sanctions are being considered that will seriously damage the Russian economy despite fears of the damage it will cause in Germany, France and the UK. All three of Europe’s financial superpowers have economic ties with Russia that will have a backlash on their own economies.
Growth of US economy
A continuation of strong US economic data released by the US Bureau of Economic Analysis (BEA) last week increased speculation that the Federal Reserve will raise interest rates sooner than expected.
As a result the dollar almost hit six months highs and has fuelled the Asian market with positive sentiment amongst investors. The appetite for risk that is returning among traders in the Far East is keeping gold prices in the balance around the $1300 an ounce price point.
US unemployment fell to an eight year low in July with an economy boosting 19000 new jobs being filled. Ordinarily, gold prices would plummet with these types of results, but with ongoing tensions in Ukraine and another concerning crisis in Gaza, Wall Street traders are bolstering gold prices because of its safe-haven insurance.
Analysts predict gold will stay above the $1300 mark this week given the ongoing violence in the two tension-filled hotspots. Further sanctions against Russia will complicate matters in Europe, particularly early in the week.
More US data is due for release this week and analysts are confident it will be more good news for the US economy. Three key indicators as to which way gold will go are the consumer confidence index on Tuesday, the Federal Open Market Committee (FOMC) statement on Wednesday and the non-farm payroll on Friday.
Consumer confidence is expected to be up and on the back of a string of encouraging financial indicators, the FOMC may commit to raising interest rates earlier than previously indicated.
The jury is still out on whether the FED will be prepared to lift rates in early 2015 or wait until the summer, but a favourable clue will support US equities and go against precious metals.
Friday could be the killer for gold prices too. The non-farm payroll is used as a yard stick to measure the health of the US economy and a positive return for June may mean gold falls below the $1300 an ounce price point – a good time for investors to get on board the gold train.