Commodity Update, Gold – 11 August 2014
Gold rises on resurging risks; increased risk aversion among investors
Gold reversed its earlier losses this week on accelerating levels of geopolitical and conflict risk, which sent investors piling into safe haven assets such as bullion and treasuries.
In detail; Russia’s retaliation against western sanctions, in the form of its own bans upon the importation of certain foods, has given a clear indication of the likelihood of it making any concessions over Ukraine.
This while In Iraq, reports that the US government was considering air strikes and drops of humanitarian aid quickly converted to reports that US war planes had struck targets in the Kurdish region of the country.
All in all, resurgent risks have dominated the week for investors and continue to cast a shadow over the near term future for markets. Most notably, the likely economic impact (upon Europe) of an escalating sanctions war between the west and Russia is not yet known, while increasing US involvement in Iraq is also likely to prove a recurring concern going forward.
When geopolitical and conflict risks are combined with evolving monetary policy regimes in the US and UK economies, we see ample room for continued volatility across asset classes going into the closing stages of the year.
Consequently, and on the contrary to our earlier statement; we also note that above average risks exist to portfolio returns at present and while negative for risk averse equity investors, these dynamics represent a favourable environment for gold prices.
As a result, we expect spot prices to remain biased toward the upside for the time being, and for this to remain the case until such a time as a durable resolution is reached in Ukraine and the US government achieves notable progress in its mission to dislodge insurgents in Iraq.
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