Gold Lifted By Ukraine Tensions, U.S. Inflation, Profit-Taking By Shorts

May 14, 2014

New York (May 14)  Gold futures rose Wednesday on safe-haven buying on worries about the continuing crisis in Ukraine, a high U.S. inflation reading and short covering, traders said.

As of 1:44 p.m. EDT, gold for June delivery was $9.80, or 0.8%, higher to $1,304.60 per ounce on the Comex division of the New York Mercantile Exchange. July silver was up 21.8 cents, or 1.1%, to $19.765 an ounce.

Some of the bounce-back is the result of profit-taking by traders who established short positions during a recent pullback, said Tommy Capalbo, precious-metals broker with Newedge. He described gold as holding within its recent trading band, meaning many traders are trying to capture gains from small moves in a range-bound market, buying on dips and selling into rallies.

“People are trying to take a couple of bucks here and there and they’re happy with that kind of move, the way this metal has been trading,” he said.

Another trader cited the stronger tone in the euro against the U.S. dollar. Around the time the gold pit was closing, the single European currency was up to $1.37049 from $1.37027 late Tuesday.

“Higher inflation numbers, along with the underlying supportive tensions in the Ukraine and South African strike, has the precious-metals complex rising once again,” said Dave Meger, director of metals trading with Vision Financial Markets.

Traders are watching to see if violence escalates in Ukraine, as separatists lead an effort to join Russia, with Western nations critical of Russia for not doing more to diffuse tensions. Meanwhile, the U.S. producer price index posted the largest increase in April since September 2012. The Labor Department reported that PPI rose 0.6%, well above consensus forecasts. The consumer price index is scheduled for release on Thursday.

The entire precious-metals complex has gotten a spillover lift from the labor issues involving three major producers of platinum group metals in South Africa, Meger said. Employees wanting to return to their jobs at Lonmin, despite no settlement in a strike against three major producers that started in January, have been blocked by co-workers. PGMs have outgained both gold and silver on the worries about violence and continued supply disruptions amid the ongoing labor strife.

Still more bullish news for the precious sector was a report from the Silver Institute showing strong silver investment in 2013, Meger added. Demand for physical bars more than doubled last year to a record high of 127.2 million ounces, and purchases of silver coins and medals hit a record 118.5 million, according to the report, for which data was compiled by the consultancy Thomson Reuters GFMS.

Ukraine tensions and U.S. economic data remain the key drivers in the market at the moment, with gold ticking up or down within its range depending upon the latest news, Capalbo said.

“Any time there is some escalation out of Ukraine, people buy into it (gold),” he said. “When it seems the situation is diffused a bit, people sell it.

“It’s the same thing with the (U.S. economic) numbers. A positive economic number (suggests) the economic recovery is in place, and that is a bearish signal for gold, so people sell it. If the numbers come in and aren’t what were expected and miss analysts’ predictions, then you get a rally. So we’re staying range-bound here until we get some kind of significant breakout, probably north of $1,315-$1,320 or below the $1,280-$1,278 area.”

Overall, volume was low, said a research note from Triland Metals.

“There is a downtrend line around $1,310 which is adding to the near-term resistance, but should this be broken, stops lurking above $1,315 will be under pressure,” Triland said.

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