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Debbie Carlson

Iraq Insurgency News Lifts Gold, But FOMC Meeting May Limit Gains

By Debbie Carlson of Kitco News
Friday June 13, 2014 2:15 PM

(Kitco News) - Gold futures rallied this week on news of insurgents capturing a key city in Iraq, and market watchers said continuing fighting could underpin the yellow metal; however, with the Federal Reserve meeting later in the week, gains could be capped if traders turn their attention back to the stabilizing U.S. economy.

August gold futures rose Friday, settling at $1,274.10 an ounce on the Comex division of the New York Mercantile Exchange, up 1.72% on the week. July silver rose Friday, settling at $19.655 an ounce, up 3.5% on the week. 

In the Kitco News Gold Survey, out of 33 participants, 24 responded this week. Of those, 16 see prices higher, three see prices lower and five see prices trading sideways or are neutral. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts.

Gold prices rose this week to their highest level since May 27, the day gold broke sharply through technical chart support. The yellow metal is now testing that former support area around $1,280. Analysts said the news this week that fighters with the Islamic State of Iraq and Syria took the key city of Mosul, Iraq, near one of the country’s main oilfields, lifted gold prices. Crude oil prices also rallied sharply on the news.

Kevin Grady, owner, Phoenix Futures and Options LLC, said the Iraq news supported gold, but that the rally came on light volume in the futures market.

Now that gold prices are testing the upper part of the current range, “there’s some reluctance to push it higher… so close to resistance,” he said.

Instead, he and other gold-market watchers said, traders are going into the energy market to position themselves based on the Iraq news. They are using crude oil as a safe-haven play rather than gold, in part because gold is nearing this technical chart resistance.

While there is hesitancy to buy gold based on the futures price, there are some bullish trades occurring in the options, he said, as many out-of-the-money call buys traded.

“We saw 1,000 of the (October) $1,350 calls and 2000 of the $1,450 calls trade,” he said.

There’s also little interest in going home short, or selling gold, over the weekend because of the news surrounding Iraq, he said.

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FOMC Meeting Next Week

Later in the week the main economic news to influence markets will be the June Federal Open Market Committee meeting, analysts said. The two-day meeting concludes Wednesday, and the general consensus is that the Fed will announce another $10 billion cut in its asset-purchase program, which has been the case at each of the last several meetings.

“We will look to see if there is any mention of discussions around the exit strategy in the statement or in Chair (Janet) Yellen’s press conference. We will also look out for any mention of the pace of adjustment when the committee begins to raise rates…. Notably, based on the weak Q1 GDP (first quarter gross domestic product) numbers, we expect to see a downward revision to the FOMC’s GDP forecast for 2014,” said analysts at Nomura.

Robin Bhar, head of metals research at Societe Generale, said the FOMC meeting will turn the market’s focus back to the U.S. economy for the time being. Given that generally U.S. economic data are improving, that sentiment could weigh on gold.

It may limit any geopolitical-induced rallies in gold, too, he said.

“Gold has support from geopolitical issues, but any macroeconomic improvement could cap rallies. So I see gold sideways again. I don’t see the geopolitical news as a catalyst out of $1,250-$1,275,” he said.

Geopolitical concerns helped gold post a positive first quarter, but Bhar said gold is entering a seasonally weak time during the June-July-August time frame and that could dampen sentiment toward the metal.

“The big (Indian) wedding festivities don’t occur until September or October... Because of (seasonal weakness) I don’t see gold breaking (above) $1,290 or $1,300. But does gold return to its down trend next week or the next two weeks, that’s hard to say, which is why I see things sideways,” he said.

By Debbie Carlson dcarlson@kitco.com
Follow me on Twitter at @dcarlsonkitco


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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