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Gold to Rise as Middle East Turmoil Weighs on Investor Sentiment

Gold to Rise as Middle East Turmoil Weighs on Investor Sentiment

2011-03-04 03:28:00
Ilya Spivak, Sr. Currency Strategist
Share:
Gold_to_Rise_as_Middle_East_Turmoil_Weighs_on_Investor_Sentiment_body_TOF_03042011_GLD.png, Gold to Rise as Middle East Turmoil Weighs on Investor Sentiment

Fundamental Forecast for Gold: Bullish

Gold prices finished Friday’s session on a strong note after recording the largest daily drop in six weeks on Thursday in the run-up to the US employment report, with the metal’s increasingly entrenched role as a safe haven amounting to losses as risk appetite recovered amid expectations of the strongest month of jobs growth since May 2010. When the number crossed the wires however, it proved underwhelming, with an increase of 192K in payrolls proving close enough to economists’ forecasts of a 196K result to have been largely priced in ahead of the release. This opened the door for turmoil in the Middle East to recapture the spotlight, sending shares lower and engineering a recovery in gold prices.

Looking ahead, the geopolitical landscape remains of primary importance for sentiment and gold alike, with crude oil prices lining up as the key barometer for investors’ risk appetite. For its part, crude shot up to set another 29-month high on Friday as Libyan opposition and pro-Qaddafi forces continued to fight for control of major oil shipping points. Putting the crisis in perspective, it is important to note that Libya ranks only 12th on the world’s top crude exporters’ list, accounting for a mere 1.5 million barrels per day of output. Therefore, the importance of the situation there is of market-moving significance in terms of shaping investors’ perceptions of what a crisis in the region could look like – bloody and disruptive rather than relatively non-violent and orderly – as had been the case in Egypt and Tunisia. To that affect, the path of least resistance for oil prices is likely to continue to lead higher as long as reports of increasingly overt civil war continue to fill the headlines. This in turn promises to weigh on sentiment, pulling bidding up gold prices.

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