Gold Prices at 3-week High on “Ongoing Geopolitical Events” Amid Rising Safe-haven Demand

GOLD PRICES reached a weekly gain of 2.2% at $1322.55 per ounce Friday morning in London, amid a drop in European and American stock markets and renewed violence in Ukraine and the Middle East.

The US President authorised limited air strikes against Islamic State (formerly ISIS).

Rocket fire from Gaza across the border resumed after a 72-hour ceasefire, so did Israeli air strikes.

Meantime, the Euro versus Dollar briefly touched $1.3400 Friday morning before falling back under this 9-month low last broken at the end of July.

Geopolitical headlines took the fore and not economic data. “Yesterday, a Ukrainian fighter jet was shot down by rebel forces and this started the rally in gold,” writes David Govett at London metals brokerage Marex Spectron. Then, President Obama authorised military strikes in Iraq and this morning the truce in Gaza ended.

“All in all, pretty much a perfect storm for gold prices.”

Gold prices in USD were set to approach the weekend at a three-week high ending a long run of weekly losses.

“Ongoing geopolitical events in Russia/Ukraine and the Israel/Palestine conflict [gave] support to the precious complex,” says the Swiss precious metals refinery group MKS in a note, adding that traders moved out of falling equities into safe haven assets providing gold with a gain of 9.2% in 2014 so far.

Panic in the equity markets, potential US strikes and the Ukraine crisis offered a safe haven-demand for gold, comments Wing Fung Precious Metals in Hong Kong, adding that “gold could climb quickly up to $1325 per ounce.”

“Risks are now tilted to the upside,” confirms another analyst in Asia.

However, seeing enhanced volatility short term, Govett believes that when “situations calm down or resolve themselves, the price will come straight back down again.”

Silver lagged behind gold but crept back up and broke the $20 mark Friday morning, a level it kept from June 19 until last Wednesday, after touching seven-week lows earlier this week. Silver prices were on track for a loss of around 1% on the week so far.

The Bank of England kept interest rates at their 5-year record low of 0.5% on Thursday. Going into the weekend gold prices for UK investors were set to gain 1.7% and reach the highs of mid-April, at around £782.55 per ounce.

Another central bank declaration of note: ECB president Mario Draghi confirmed yesterday the European quantitative easing was in preparation.

Gold prices in Shanghai meantime maintained a premium of $1-2 over and above London prices this week amid falling Asian stocks and China’s trade surplus record high.

The physical gold holdings of the giant gold ETF, the SPDR Gold Trust (NYSEArca: GLD), shed more than 2 tonnes Thursday but remained unchanged Friday for a total of 797.654 tonnes.