Midday Market Update Aug 27: Gold Gets Syrious

Gold today officially transitioned into a bull market, lifting 20% off the lows seen in June. Silver is still slightly outperforming gold this week. Save haven demands over imminent U.S. military reprisals against Syria for its use of chemical weapons on civilians is the main headline, but reduced expectations of the reduction of quantitative easing measures by the Fed, and another debt ceiling crisis crawling back into the public consciousness are playing roles as well.

Gold hit an 11-week high in early U.S. trading, at $1,424 an ounce before easing back a bit, showing a serious threat of breaking the next resistance level on the way to $1,450. Silver also hit an intraday high early in New York, at $24.79 an ounce, before backing down. Momentum traders are starting to get in on the game as Syria dominates headlines. Oil is also sharply higher, on fears that a widening Middle East conflict could imperil oil shipments.

The dollar, which had spiked positive in European trading was pummeled solidly back into the red early in New York. Fears that the housing recovery is ending, along with other weak economic data, is weighing on the greenback. Emerging market currencies, including the Russian ruble, are being beat down as foreign capital flees to Europe, Japan, and the U.S. The Indian rupee is setting new all-time lows against the dollar almost daily, fueling demand for a gold supply the government has mostly choked off in an attempt to balance the nation’s trade deficit.

The Swiss Franc and Japanese Yen are stronger on save haven demand, while German and U.S. bonds are also being bid up. Syrian opposition leaders have been told that a U.S. military strike against the Assad government could occur “within days,” as the Obama Administration cancels bilateral meetings with Russia over jointly setting up peace talks between the combatants. Russia and Iran both are warning the U.S. against military strikes on Syria.

In Europe, continuing signs of a German economic recovery were negated over the instability of the government (and financial reforms) in embattled Italy, while in the U.S., stocks opened sharply lower.  Money worldwide is moving out of equities into safe haven harbors such as bonds and gold.

Curiously, gold and silver have not shown large reactions to the dollar’s fall today, much like they ignored its strength recently. Larger factors seem to be at work, muting the dollar’s influence over precious metals.

 

by David Peterson

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