Gold Rises as Investors Seek Refuge from Middle East Crisis
London (Jan 4) Gold prices moved higher on the first trading day of the new year, as investors sought havens amid instability in the Middle East and fresh concerns over global growth.
Though the year has started on a positive note, most investors believe that the factors that pressured gold last year—higher U.S. interest rates and a strong dollar—will keep a lid on gains in 2016.
Spot gold was up 1.13% at $1,072.20 a troy ounce in morning European trading. Investors were also buying other safe haven investments, such as treasurys.
On Sunday, Saudi Arabia cut off diplomatic relations with Iran as tensions rose, following the Kingdom’s execution of an Iranian cleric. On Monday, weaker-than-expected Chinese manufacturing data and a falling currency triggered declines in mainland Chinese stocks so steep that authorities halted trading there for the rest of the day.
But with many traders still away from their desks on vacation, the market was relatively quiet and short-covering by investors had an outsize effect, according to David Govett, head of precious metals for Marex Spectron.
“Gold often seems to benefit at the start of the new year” as investors reassess their investments, Mr. Govett said.
Analysts also believe that the impact of geopolitical tensions on gold prices will be fleeting.
Saudi-Iran rift could further disrupt oil prices
Gold’s role as a haven investment has been waning in recent years, said Simona Gambarini, a commodities economist at Capital Economics in London.
“I think [the impact] is quite limited,” she said.
Instead, trading in the metal last year was dominated by the wait for an interest-rate increase in the U.S., which finally came at the meeting of the Federal Reserve in February. Because gold doesn't bear interest, the metal struggles to compete when interest rates rise.
Anticipation of higher rates also helped push the dollar 25% higher in the past 18 months, making greenback-denominated currencies more expensive for many investors.
The precious metal ended 2015 at $1,060.20 a troy ounce in New York, down around 10.7% for the year, a level not seen since February 2010.
Following the first rate increase, the market will be watching U.S. economic numbers for signs of how fast future increases could come, Mr. Govett said. Nonfarm payroll numbers from the U.S. will be released this Friday.
Still, Mr. Govett said few surprises are likely to be in store.
“I think gold’s just going to carry on the way it’s been for the recent past, with thin, jumpy trading.”