Syria jitters send gold prices soaring to 3-1/2-month high

Gold prices rallied to 3-1/2 month highs above $1,430 an ounce on Wednesday as rising tensions over Syria sparked safe-haven demand and a scramble among investors to reduce their bets on falling prices.
The precious metal reached a peak of $1,433.31 an ounce in early trade, its highest since May 14, as the United States and its allies geared up for a probable military strike against Syria that could come within days, Reuters said.
Commenting on the rising gold prices, John Sfakianakis, chief investment strategist at Masic, a Riyadh-based investment firm, said: “Despite some positive economic news from Europe and from the United States Tuesday, stock markets in both regions fell by the same amount. This demonstrates that there is little differentiation by investors as they rush into risk-off reactions and cash is king. With news about Syria in the news, the obvious explanation for traders of gold, oil and equities is the geo-political risk. Inflamed geo-political and economic risks have at least accelerated the current gold price revival.”
However, he said, in each of these markets the trends that were sharply extended Wednesday had already been running for the past 3-4 weeks.
“At the start of August, however, Syria did not preoccupy investors in the way it does now. So it is possible the real catalyst lies elsewhere. As expected, the metal found solid demand on dips,” Sfakianakis added.
Other factors that currently dwell in the background are the choice of a new Fed chairperson and the upcoming US debt-ceiling debate and the debate over taper. Either way, it is possible that a future cooling of the Syria rhetoric does bring the on-going trends to a temporary halt, he said.
Spot gold was up 0.7 percent at $1,425.60 an ounce at 9:33 a.m. GMT, while US gold futures for December delivery were up $5.60 an ounce at $1,425.80.
Investors sold gold heavily in the first half of 2013, pushing prices to their lowest in nearly three years, on speculation that ultra-loose US monetary policy was coming to an end. Many positioned themselves for further losses and have now had to close out those positions.
Prices have risen nearly 8 percent this month, their biggest monthly climb since January 2012, as expectations receded that the Federal Reserve is set to imminently curb its bullion-friendly $85 billion monthly bond-buying program, Reuters said.
“While there may be intermittent price recovery, our long-term view is bearish on the precious metal. We project an average price of $1,394 over the next four years on a recovering US economic picture and ensuing strength of the dollar,” Asim Bukhtiar, vice president/manager research at Riyad Capital, told Arab News.
He said: “Jewelry is the major demand component of gold, comprising nearly half of global demand, therefore any price increases should have limited economic impact on Saudi Arabia, which ranks 37th among the top gold producing countries.”
At this point, we do not expect central banks to significantly raise their gold holdings, Bukhtiar said.
Oil prices surged, with Brent pushing above $117 earlier in the day and the US benchmark hitting its highest in more than two years.
“Gold and crude oil (have) a historical positive correlation and it tends to strengthen during periods of rising geopolitical tensions," Reuters quoted HSBC as saying in a note.
“Given investor uncertainty surrounding the Middle East, bullion has room for further gains in the near term should energy commodities, including WTI crude oil, continue to rally.”
Gold prices hit record highs in Indian rupee terms for a second day on Wednesday as the rupee slumped to a record low versus the dollar. The most-traded gold for October delivery on the Multi Commodity Exchange (MCX) hit a peak of Rs.34,622 per 10 grams.
Among other precious metals, silver prices rallied to their highest since mid-April at $25.08 an ounce, tracking gold. Silver was later up 1.3 percent at $24.77 an ounce.
Spot platinum was up 0.8 percent at $1,530.99 an ounce, while spot palladium was up 0.3 percent at $744 an ounce.
According to the World Gold Council (WGC), gold demand totaled 856.3 tons worth $39 billion, its lowest level for more than three years. Lower prices generated another surge in quarterly jewelry demand, most notably in India and China. Record quarterly investment in gold bars and coins was countered by sizable outflows from ETFs as Western investors reacted to a seemingly more positive outlook for the US economy and an eventual tapering of quantitative easing. In a turbulent Q2, demand fell by 12 percent.
That total bar and coin demand was able to reach a record value of $23.1 billion in spite of such a sizable price move is testament to the strength of demand in that sector.
The WGC said consumer market for gold was once again dominated by global leaders India and China, which together accounted for almost 60 percent of the global jewelry sector and around half of total bar and coin demand.
In India, while economists attributed the fall of the rupee to nearly 69 against the dollar to the likely Western attack on Syria and the gold price rise, the public in general felt the rupee falling by the day had something to do with the government’s financial miss-handling, which even the Reserve Bank of India (central bank) seemed unable to check or deal with. “The rupee continues to fall every day and all we hear from federal Finance Minister Palaniappan Chidambaram is to have patience. How much patience can we have when it is adversely impacting the economy and consequently the business sector,” a leading businessman remarked in Mumbai.