Europe’s sovereign debt concerns and escalating tensions between North and South Korea boosted Gold prices to a two week high as investors fled to the safety of the metal. Political and economic uncertainty tends to benefit the commodity as it is perceived as a haven investment. The renewed investment wave in the metal began as the Irish debt crisis unfolded as people began shedding risk. Gold futures for December delivery rose $16.50, or 1.2%, to $1,374.30 on the Comex in New York. Discouraging signs from the U.S economy also contributed to today’s rally.
It is difficult to say. However, whether today’s gains signal a short-term bounce or return to the momentum that has driven prices to a record high of $1424 an ounce earlier this month.
Volatility has been extremely high in Gold trading over the past few months; driven mostly by economic growth expectations from China and uncertainty about the pace of rising demand. Monetary policy in the U.S and China tends to have the strongest impact on the commodity. Gold’s rally was hindered by expectations of monetary tightening by China that may precede other developing nations thus curbing demand.
Gold traded lower as investors were liquidating their positions throughout last week, ahead of today’s options expiration and as the rollover continues from December futures into 2011 contracts. As options expire Gold prices could trend lower. Overall the momentum seems to have subsided slightly with investors getting more nervous as we get close to year end.
It is likely that Gold prices will remain higher for this week, heading to the long holiday weekend in the U.S as economic and political turmoil seems to dominate market sentiment. Any escalation in relations between the Koreas’ or further disappointing news from the euro-zone will likely push Gold above $1380 an ounce. We are, however, unlikely to see Gold levels breaching $1400 again ahead of the new year.
