Gold closes the week lower; monetary policy, economic data and physical demand in the spotlight

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Commodity Update; Gold- 22 August 2014

Gold closed the week lower on Friday as multiple factors combined to sour investor sentiment toward the metal and weigh down prices. Among the line-up of culprits has been a persistent reduction in emerging market demand combined with long held expectations among the masses that prices will fall further later on in the year.

The stronger economic outlook for the likes of the UK and the US has also been a factor as central banks on both sides of the Atlantic have become resolutely more hawkish in recent weeks. The effects of this upon gold have been further compounded by what is still a general lack of inflationary pressures and a long awaited turn in US housing market numbers this week.

While on an economic basis we believe that the outlook for gold is less than favourable, and continue to maintain our pre-existing view that prices will resume along their broader downward trajectory over the medium term, we are cautious of overly bearish sentiment toward the metal at present.

This is mostly due to recent developments in relation to the Ukraine crisis as well as heightened stakes over the islamist insurgency in Iraq and Syria.

Here we believe that the risk of increased levels of Russian aggression toward Ukraine are still high, while the insurgency in the middle east threatens to embroil western nations in another protracted military campaign; despite the best wishes or intentions of budget and election conscious politicians.

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