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Gold Eases With Tensions Over Syria; Gold Forward Rates Positive Again

By Allen Sykora Kitco News
Thursday August 29, 2013 9:59 AM

(Kitco News) - Gold futures rose this week on geopolitical tensions surrounding Syria but gave up those gains on ideas that a military strike on the country by the U.S. and its allies may not be imminent after all.

Additionally, some observers said, the market does not appear as tight as it was a few weeks back based on factors such as gold forward offered rates that are now positive again.

As of 9:20 a.m. EDT, December gold was down $16.90, or 1.2%, to $1,396 an ounce on the Comex division of the New York Mercantile Exchange. That takes prices back down to around the close of $1,395.80 one week ago.

The contract soared to $1,434, its highest level since mid-May, Wednesday on safe-haven buying when it appeared the U.S. would lead some kind of military strike against Syria over the alleged use of chemical weapons in country’s two-year-old civil war.

Prices fell back some Thursday on ideas that it might be a while yet before any strike, then fell more on Friday.

“It’s no surprise given the easing of tensions on Syria after the U.K. vote last night not to launch retaliatory action on Syria with other allies,” said Robin Bhar, metals analyst at Societe Generale.

The U.K. Parliament Thursday voted 285-272 against a government motion to authorize a military response, with the defeat seen as a setback for U.S. efforts to act against Syria.

“That’s one of the main reasons (for lower gold),” said Afshin Nabavi, head of trading at trading house MKS (Switzerland) SA.

On top of this, he continued, many traders may be reluctant to hold positions – long or short – ahead of a three-day holiday in the U.S. for Labor Day. Much of the activity for the remainder of Friday may be squaring up of positions.

The market will continue to monitor the Syrian situation closely. “Further escalation in tensions could easily take prices higher,” said Joni Teves, analyst with UBS. Much will hinge on whether the situation deteriorates further and how long it lasts.

“The U.K. Parliament’s recent vote against taking action raises the question of whether or not the U.S. will act unilaterally,” she said. “The situation remains very fluid and nothing can be ruled out with certainty at this stage, but the U.K. position does somewhat reduce the risk of imminent foreign intervention.”

Some of the pressure on gold overnight also was the result of a stronger U.S. dollar after economic data on Thursday, Bhar added. Second-quarter growth in gross domestic product was revised up to 2.5%, compared to the initial report of 1.7%. The euro was down to $1.3219 early Friday from $1.3238 late Thursday and $1.3340 late Wednesday.

Gold Forward Rates Positive

Bhar said some of the tightness in the gold market also appears to be letting up. The rise in prices recently cooled physical demand some, he said. For instance, gold forward offered rates are now positive again after they were still negative not long ago, he said. These are rates at which contributors are prepared to lend gold on a swap against U.S. dollars.

As of when he spoke with Kitco News, the one- and two-month rates were 0.04%, the three-month was 0.05%, the six-month was 0.07% and the 12-month was 0.18%.

“The gold forward curve is now in complete contango as the front end moved sharply higher yesterday and continues higher this morning,” said Steve Scacalossi, director of global precious metals with TD Securities.

Contango is when the nearby prices are lower than deferred prices.

By Allen Sykora of Kitco News asykora@kitco.com

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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