On Monday, as gold inched toward $1,400 an ounce, bulls claimed the yellow metal was entering a third-quarter bull market – and Tuesday’s gold-price gains helped it get there.
Comex gold surged $24.40 to $1,417.50 an ounce in mid-morning trading Tuesday, and spot gold soared $13.50 to $1,419, a three-month high.
The precious metal is now up some $200 an ounce, or 20%, from June’s three-year low of $1,179.40. A 20% gain equals a bull market.
Propelling gold prices Tuesday was a move from “risk-off” trades into safe haven assets.
All three major U.S. benchmarks were off sharply Tuesday, piggybacking the swoon that began late Monday, as investors grow increasingly concerned the United States and its allies are organizing military action against Syria.
Editor’s Note: To get the full picture of where gold prices are headed next, you have to see this chart out of China. It’s the most important gold graph we’ve seen in a long time…
“Coming within the current nervous state of the markets, any flare-up or intensification of Middle Eastern tensions will surely take a further toll on risk sentiment,” Marc Chandler, global head of currency strategy at Brown Brothers Harriman, told Reuters.
U.S. Secretary of State John Kerry commented Monday that evidence “strongly indicates” chemical weapons were used in Syria. Kerry said U.S. President Barack Obama “believes there must be accountability for those who would use the world’s most heinous weapons (chemical gas) against the world’s most vulnerable people.”
Those comments were construed as a war speech, and military retaliation against the Syrian government could occur as early as Thursday.
“The opposition was told in clear terms that action to deter further use of chemical weapons by the Assad regime could come as early as in the next few days, and that they could still prepare for peace talks at Geneva,” a source who was at Monday’s meeting between envoys and the Syrian National Coalition in Istanbul told Reuters.
Weak Data Could Delay Taper
It’s not just the headline news factoring in to why gold is up today…
Also goosing gold prices of late is mounting speculation that the U.S. Federal Reserve might wait a while longer before it begins to taper its market-supporting $85-billion-a-month asset purchase program.
A fresh spate of dismal economic data has led many analysts to believe the central bank won’t take away the fiscal punch bowl in September as was previously expected.
“Quantitative easing isn’t going anywhere any time soon,” Money Morning Capital Wave Strategist Shah Gilani told FOX Business’ “Varney & Co.” program. “The Fed isn’t going to just walk that back if the markets are going to turn around and ruin their whole wealth effect project. They might taper slightly to prove they’re good for their word, but they have to support this weak economy.”
Indeed, recent glum reports on home sales and durable goods orders – along with uninspiring employment numbers, waning consumer sentiment, and anemic retail sales reports – have fueled debate over the taper timeline.
The lackluster reports, especially the dreary home data, may give the Fed reason to pause.
The central bank’s goal with three rounds of quantitative easing was to goose the ailing housing market. But ever since the first mumblings of a taper, interest rates have risen, hitting housing faster than expected. The average rate on the 30-year fixed mortgage has tacked on a full percentage point over three months to 4.58%, according to Freddie Mac. The rise is responsible for the notable drop in mortgage applications.
Betting on Higher Gold Prices
Also driving gold prices up today – and in coming months – is soaring growth in consumer and investment demand for gold.
Hedge funds and other speculators have increased bullish gold positions to the highest level in six months amid signs of slowing U.S. growth, which pushed bullion over the key $1,400 level.
U.S. Commodity Futures Trading Commission data shows that net long positions jumped 29% to 73,216 futures and options contracts. Meanwhile, short contracts fell for the second consecutive week, to the lowest number since Feb. 12.
Additionally, demand for physical gold keeps climbing.
“Volatility in the gold spot price has been relatively mild, which tends to stifle demand for physical bullion. With geographical tensions mounting (Syria), growing support for prolonged stimulus and renewed U.S. debt ceiling concerns though, demand for physical gold has been revived,” J.W. Haugen, COO of Texas-based Provident Metals, told Money Morning.
Physical demand is also up thanks to affordable prices not seen in nearly three years.
The latest World Gold Council Demand Trends report (April-June 2013) found significant increases in demand, most notably from consumers in China and India.
Globally, jewelry demand jumped 37% in the second quarter of 2013 to 576 tons, up from 421 tons in the same quarter a year ago. Demand was up 54% in China, 51% in India, 33% in the Middle East, and 38% in Turkey.
Bar and coin investment swelled by 78% globally, topping 500 tons in a quarter for the first time. Demand for gold bars and coins soared 157% in China and 116% to a record 122 tons in India.
Collectively, global jewelry, bar, and coin investment demand totaled 1,083 tons in Q2, up 53% from a year earlier.
And for the tenth consecutive quarter, a trend that started in Q1 of 2011, central banks were net buyers, purchasing 71 tons of gold.
In fact, the global demand for gold – especially from China – is key to the future of gold prices, and any investor looking for profits needs to understand it. Here’s a chart that tells the story you can’t miss…
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