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Gold Rises on Palestinian Conflict

Release Date: 
Saturday, November 24, 2012

Gold Rises on Palestinian Conflict

November 24, 2012

American Advisor host Joe Battaglia provides a wrap-up of the week's precious metals news along with important commentary every week on the American Advisor Week in Review audio program. Click here to listen.

The price of gold moved higher this week as the Israeli-Palestinian conflict spurred demand for safe haven assets.  Gold was $21 higher for the week, settling at $1,734.50 per ounce at 2:15 PM Pacific  Time at the New York Spot Market close, while silver was $1.14 higher, closing at $33.41 per ounce.

Violence in the Gaza Strip continued this week with Israel bombing suspected militant sites while Hamas fired rockets across the Israeli border.  "The situation in the Middle East could be supportive for precious metals,” said analyst Peter Fertig with Quantitative Commodity Research.  Fertig explained that the conflict is “supportive for the price of crude and precious metals often rise with higher crude prices."

Tom Kendall, head precious metals research at Credit Suisse, said the Gaza Strip violence could have more impact on the gold market if energy prices move higher.  "There is a small risk that the violence could spill over into other parts of the Middle East,” he said.

"If the oil market starts to move considerably higher based on Middle East risks, inflationary pressures would grow, and so gold could be seen as a way to hedge against inflationary pressures," said analyst Dan Brebner at Deutsche Bank.

Saxo Bank vice president Ole Hansen said the rising conflict between Israel and the Gaza Strip, worries over the unresolved euro zone debt crisis, and continuing talks to resolve the fiscal cliff all support gold.  Once the fiscal cliff is resolved, the underlying interest rate environment is likely to remain low for some time and could support gold prices, Hansen said.  "The fact that we are holding above the $1,700 level is giving investors the kick to get back into gold," he added.

“Unless there is a clear agreement between the Democrats and Republicans on the solution to the so-called U.S. fiscal cliff, the short-term direction is bullish for gold,” said Chintan Karnani, chief analyst at Insignia Consultants.  Karnani also noted that the escalation of the Palestinian conflict is a key reason for gold’s rise as it raises demand for safe haven assets like gold.

“We see gold as a hedge against the follies of politicians,” said Michael Mullaney, who helps manage $9.5 billion of assets at Fiduciary Trust in Boston. “It’s a good time to garner some protection in portfolios by having some real asset like gold.”

According to Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong, “…speculators are still bullish on gold, as uncertainties about the 'fiscal cliff' hang around and they believe that central banks around the world will stay loose on monetary policy.” 

“It looks as though global monetary stimulus is likely to continue, particularly in the wake of growing fiscal austerity,” said Alan Gayle, senior strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees about $47 billion of assets. “That puts pressure on the monetary authorities to stimulate the economy and that will debase the currencies and put a bid under gold.”

After extended meetings, European finance ministers failed to reach a deal on a 31.5 billion euro ($40.3 billion) aid payment for Greece.  Stan Shamu, a strategist at IG Markets, said it was "hard to see how they [euro-zone ministers] will come up with a solution on Monday,” adding, "Greece will continue to haunt the markets.”

Brazil’s central bank increased its gold reserves by 17.2 tons in October, the most since January 2001, according to the International Monetary Fund.  “This is a chunky purchase by a central bank, and the gold market will likely sit up and pay attention,” said Edel Tully, analyst at UBS AG in London, referring to Brazil’s purchase. “Today’s news confirms much of the market chatter at the time that official sector buying was taking place and was one of the key factors that gave prices a reasonable floor last month.”

In total, emerging market nations including Kazakhstan and Russia increased holdings by more than 40 tons.  Nations bought 373.9 tons of gold in the first nine months of the year and full-year additions will probably be between 450 to 500 tons, the World Gold Council estimates.

“The IMF figures showed continued strong buying by central banks,” said Dan Smith, a commodities analyst at Standard Chartered Plc in London. “This continues the trend of recent months and we expect this to support gold prices.”

HSBC strategists believe gold demand may pick up shortly. “We anticipate demand to remain resilient in the fourth quarter, in part due to the emerging markets, most notably in India and China,” they said.

Gold is expected to rise every quarter next year and may average $1,925 an ounce in the final three months, or approximately 11 percent more than the current price, according to the median estimates of 16 analysts polled by Bloomberg.  Credit Suisse Group analyst Tom Kendall, the most accurate gold forecaster tracked by Bloomberg over the past two years, said gold may average $1,880 per ounce in the fourth quarter of next year.  UniCredit SpA’s Jochen Hitzfeld, ranked second by Bloomberg, said gold could rise to $1,950 per ounce. Analyst Dan Brebner at Deutsche Bank, the third most accurate forecaster, said gold may average $2,300 per ounce in the third quarter. 

"Gold is just a few dollars shy of its 50-day moving average sitting at $1,741, and more importantly, a key technical level lurking at $1,739.10," UBS said in a note.  "Our technical strategist notes that a break above this level, which is the month's high, would be a crucial bullish development that would open up $1,748.95…”

ScotiaMocatta, the gold bullion banking division of Scotiabank, noted that gold has reached record highs this year in a host of currencies.  “What is interesting is that this represents a mixture of developed and emerging economies, which highlights the broad-based appeal of gold as an alternative currency.’

“Having consolidated between September 2011 and September 2012, we feel gold prices have started another up leg that is likely lead to new highs during 2012,” ScotiaMocatta said.  In their November 2012 Precious Metals Forecast, ScotiaMocatta said “we would not be surprised to see prices reach $2,200 per ounce.”

“There remain a multitude of factors influencing the gold price, but one of the main reasons we are still bullish is because of the mess the Western world is in,” ScotiaMocatta said. “Europe has a debt problem that is proving all but impossible to solve and all efforts to date have revolved around throwing more money at the problem to avoid the monetary system from breaking down.”  According to the bank, “that should be reason enough to be bullish for gold and we think the latest move higher in gold prices shows that it is.”

“As faith in policymakers wanes with their handling of the crises, we expect investors will not want all their wealth backed by paper assets and therefore will look to spread their risk by holding gold and other hard assets,” ScotiaMocatta noted. “Greater monetarization of gold is likely to be bullish for prices.”  The analysts said, “overall, we do not think we have seen the peak in gold yet as we think the world’s financial problems are far from over.”


(Sources:  “Gold Tops $1,730 as Stocks Rise, Dollar Wilts,” CNBC, November 23, 2012; “PRECIOUS-Gold crawls up as Greece inches near deal,” Reuters, November 23, 2012; “Weak dollar supports gold prices,” Marketwatch, November 23, 2012; “Brazil Boosts Gold Reserves to the Highest in More Than 11 Years,” Bloomberg, November 21, 2012; “PRECIOUS-Gold edges down as dollar firms after no Greece deal,” Reuters, November 21, 2012; “PRECIOUS METALS: Gold Declines in Asia as Greece Aid Remains in Limbo,” Wall Street Journal, November 21, 2012; “Soros Buying Gold as Record Prices Seen on Stimulus,” Bloomberg, November 20, 2012; “PRECIOUS-Gold steadies on hopes for U.S. fiscal deal,” Reuters, November 20, 2012; “Gold up nearly $20 to settle at highest in a month,” Marketwatch, November 19, 2012; “We would not be surprised to see gold prices reach $2,200/oz’—ScotiaMocatta,” Mineweb, November 19, 2012; “PRECIOUS-Gold firms, buoyed by Middle East,” Reuters, November 19, 2012; “PRECIOUS METALS: Gold Climbs As Fiscal Cliff Fears Ease,” Wall Street Journal, November 19, 2012; “Gold Gains in New York on Weaker Dollar, Israel Conflict Concern,” Bloomberg, November 19, 2012)

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