Commodity Update; Gold – 26 September 2014

Threat of another prolonged conflict outweighed by positive economic outlook and mon-pol transition; gold remains under pressure

Gold opened the week with a bang on Monday and Tuesday as accelerating attacks by US aircraft on targets in Iraq were extended to include Syria, an area that was previously off limits to the coalition due to threats made by the Syrian regime.

Despite the initial reaction from financial markets, the air-strikes were carried out successfully without hindrance from Syrian forces. As a result, prices pulled back swiftly from their Tuesday peak at $1235, reaching lows of $1206 on Thursday morning.

In addition to the above, a Thursday afternoon attempt at recovery also fizzled out when on Friday, US GDP figures for the second quarter were released. These illustrated a sharp upward revision to output during the period, with the actual figure coming in at 4.6% as opposed to the previous estimate of just 4.2%.

All in all, the week’s events have served to further cultivate an already negative environment for gold. With physical demand falling, China stabilising and both the US & UK economies transitioning toward a rising rate environment; incentives for holding the metal are not what they once were.

While geopolitical and conflict risks are likely to ensure that the path ahead for gold is not straightforward, the metal appears determined to revisit its previous low of $1180; a point which also forms a key long term support level.

Should this give way and a move below become sustained, then we would view this as a green light for a further leg downwards and a confirmation that the longer term downward trend has resumed.Under this scenario, we would view it as only a matter of time before the $1000.00 per ounce level comes into view.

Spot Gold

GOLD26SEPT

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