Gold Prices See Best Weekly Rise Since March as Iraq Violence Sparks Short-Covering, $1.7bn Resource Fund Holding "Record-Low" Gold Exposure

GOLD PRICES spiked to new 2-week highs at $1277 per ounce Friday morning in London, easing back to hold firm near a 2.2% gain for the week – its best since March – while Asian stock markets closed higher but Europe lost 1% and more as Iraqi insurgents seized more towns near Baghdad.

 

Set to slip at Friday's opening, New York's S&P 500 stock index was on course for 1.5% weekly losses.

 

The British Pound meantime touched new 6-year highs just below $1.70 after Bank of England governor Mark Carney said UK interest rates may rise "sooner than the market currently expects."

 

Gold prices for UK investors fell 1% overnight, cutting the week's rise to 0.6% at £750 per ounce, a level first reached in early 2010 – one year after the Bank first slashed UK rates to the current all-time low of 0.5%.

 

"With equity markets in Europe and the US setting record highs," says the latest monthly report from analysts at bullion bank Scotia Mocatta, "[and] with optimism for continued economic recovery gaining momentum...the opportunity cost of holding gold has risen.

 

"Investor interest in gold may remain subdued for a considerable time," says the bank, "unless financial risks pick up again."

 

"We remain nervous about the outlook for the gold price," says $1.7 billion natural resources fund manager Neil Gregson at J.P.Morgan Asset Management, pointing to "Federal Reserve tapering" of its QE asset purchase program.

 

Expecting rangebound gold prices "without a significant catalyst for further gains," Gregson told the Financial Times' FT Advisor magazine Wednesday that his natural resources fund now holds less than 12% exposure to gold – "the lowest it has ever been."

 

At Friday prayers in Iraq meantime, the country's most senior cleric – Grand Ayatollah Ali al-Sistani – called on Shia Muslims to arm and defend against Sunni insurgents linked to al-Qaeda.

 

Brent crude oil prices hit a three-year high above $113 per barrel as ISIS troops entered more towns near Baghdad.

 

Provided the invasion " does not spread further," the International Energy Agency in Paris said Friday, Iraq's oil output – forecast to grow 1.2 million barrels per day by 2019 – is "not immediately at risk."

 

"Gold prices are stalling ahead of weekend," reckoned George Gero at RBC Wealth Management as New York trade began Friday, with "traders not wishing to open new positions" after Thursday saw rapid short-covering of bearish futures contracts, with the most extreme anti-gold betting of 2014 to date caught off-guard by news of the al-Qaeda linked advance across Iraq. 

 

Silver held tight around $19.54 per ounce for a 2.7% rise on the week, while gold prices moved just $1 either side of $1273.

 

Platinum and palladium prices continued to slip after South Africa's AMCU union presented its 70,000 striking members with a new wage offer from top miners Implats, Lonmin and Anglo American Platinum.