Gold Gains on Tensions in Ukraine, Middle East
New York (Aug 22) Gold prices rose Friday as tensions in Ukraine and the Middle East trumped investor worries about a potential rise in U.S. interest rates.
Gold for December delivery, the most actively traded contract, closed up $4.80, or 0.4%, at $1,280.20 a troy ounce on the Comex division of the New York Mercantile Exchange. For the week, the contract lost 2%.
U.S. and Western military leaders condemned Russia for sending a convoy of trucks believed to be carrying humanitarian aid into eastern Ukraine without Kiev's permission, calling it a violation of Ukraine's sovereignty that could spark an international response. In the Middle East, U.S. officials have called for more airstrikes against Islamic militants in Iraq, while Hamas killed 18 people accused of collaborating with Israeli forces, after three of its senior leaders died in targeted attacks by Israel Thursday.
Some investors buy gold in times of geopolitical or economic uncertainty, believing it will hold its value better than other assets. But with the U.S. recovery gaining strength and the Federal Reserve seen as debating a sooner-than-expected increase in interest rates, some investors believe prices for the precious metal are headed lower.
"Where would gold be if not for these geopolitical headlines," said Frank McGhee, head of precious metals at Integrated Brokerage Services. "This really looks like last gasp, desperation buying."
At a Friday meeting of central bankers in Jackson Hole, Wyo., Federal Reserve Chairwoman Janet Yellen reiterated comments made in July, saying the Fed could raise rates sooner than expected if the job market continues to improve or consumer prices rise toward the central bank's 2% goal, but will keep rates low if progress stalls.
Many gold traders worry that the strengthening U.S. recovery will push the Fed to raise rates before the mid-2015 timeline many had expected, a move that would be bearish for gold, which costs money to store and struggles to compete with Treasury bonds and other interest-bearing investments when rates climb. Those fears were reinforced Wednesday, when minutes from the Fed's July policy-setting meeting showed officials debated the possibility of raising rates sooner, but opted to wait for further evidence of economic health.
Gold prices have also been hurt by a stronger dollar, which detracts from the metal's appeal as a hedge against currency devaluation.
"Right now, the path of least resistance to gold appears to be sideways or lower," said Jim Wyckoff, an analyst at Kitco Metals. "The strong dollar and stock markets near record highs have been diverting money flows away from gold."
Silver prices fell 2.9 cents, or 0.2%, to $19.386 a troy ounce. It was the lowest settlement for the most actively traded silver contract since June 11. Prices are down almost 10% from their July 10 peak of $21.508 an ounce.
Platinum for October delivery eased 80 cents, or 0.1%, to $1,418.50 a troy ounce, the lowest settlement since April 24.