The Week In Hindsight; 13 June 2014
Gold closed out its second week of gains today as a sudden escalation of violence in Iraq saw investors piling into safe haven assets. While poorer than expected retail sales and inflation data laid the foundations for higher levels in gold prices, the sudden exacerbation of civil unrest in Iraq has been the key driver of the metal into the latter stages of the week.
Given that the crisis is unlikely to recede without either bloodshed or further unrest, we see gold biased toward further gains over the coming days. As a result, we see strong support for prices at the $1265.00 level, while an upward move toward $1285.00 seems the most likely outcome for the opening stages of next week.
Reports from the latter half of the week suggest a Sunni Islamic sect from the north of the country has mobilised a brigade of militants and, at first glance, attempted to take the country.
The uprising has, so far, led to the capture of an escalating number of arterial cities while several key oil refineries are also believed to have been seized.
Information reported via both Bloomberg and Reuters on Thursday afternoon indicated that the militant forces were, at the time, advancing toward the capital Baghdad with the intention of seizing it.
The unrest has prompted Shi’ite militias to mobilise outside of Baghdad, after government forces abandoned their posts, with the intention of defending the city. In response to the conflict, Barack Obama has publicly pledged his support for the Iraqi government and in a statement released on Thursday evening, also alluded to the possibility that the United States could intervene in militarily in order to preserve Iraqi democratic integrity.
Going forward, our base case scenario sees the potential outcome from this being increased levels of violence and disruption at the national level, with a moderate to high degree of risk that this evolves into some form of civil war.
On a worst case scenario basis, a protracted civil conflict evolves, oil output (economy) is severely disrupted and the international community is drawn into providing military support to the government and Shi’ite militias.