There
are very few things in today’s market that are as volatile as gold. This is
truly a commodity where daily factors both internal and external affect what
people will do with it. Last week was undoubtedly a good week to hold gold.
Escalating tensions in Ukraine and the Middle East proved to be auspicious for
gold holders. This week, though, seems less favorable.
Gold
prices have shuffled between gains and losses on Wednesday but this week’s
moving factor is entirely different. While it is true that depleting
geopolitical factors influence buyers to hold gold in greater quantities, it is
not a force great enough to substantiate an influential change in the manner in
which gold is traded. It is true that people may hold more gold for security purposes.
This was certainly the case last week in midst of growing challenges with ISIS
and Ukraine, however I would argue that the much more influential factors are
the consent of macroeconomic policies. Namely, the Federal Reserve and interest
rates. What we have seen in the last day is a very malleable gold price in
relation to the July policy meeting minutes, which indicate a potential for rising
interest rates.
Already
the market is seeing sluggish demand for gold. The price has again fallen below
the US$1,300 mark on Tuesday as data reflected a strengthening U.S. housing
market. In addition, the Fed revealed a cut in bond purchases by $10 billion
for a sixth time since the month of November. The Dollar also rose against an
array of currencies, curbing the appeal of gold as an alternative safe
investment. According to an interview with Bloomberg,
Mr. Fain Shaffer of Infinity Trading Corp. said, “Prices are not going anywhere
as people are waiting for the Fed minutes, we may see weakness today if the
minutes indicate they have firmed up plans about when they want to raise
rates.”
A
growing U.S. economy in addition to a strengthening house market all leave
analysts in fear of increasing interest rates that could come soon than
expected. A higher interest rate, of course, would denote a higher cost
associated with holding gold. In terms of a price perspective, gold doesn’t
necessarily have a story driving its price upwards. You could make the case
that there are preliminary geopolitical tensions but they are still largely
localized and not strong enough to substantiate a major shift with respect to
where gold is headed.
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