Gold Back in Bull Market Territory

After taking huge hits this year amid weak investment demand, gold marched back into a bull market as escalating geopolitical tensions in Syria saw investors park their cash in safe haven assets, like bullion. Gold rose 1.2% to $1,433.85 in early trade. At this level, the metal was up 21% on June's near three-year low at $1,180.20 an ounce.

By Francesca Freeman
Aug 28, 2013
The Wall Street Journal

The gold market has found its feet.

After languishing for the most part of this year amid weak investment demand, gold marched back into a bull market Wednesday as escalating geopolitical tensions in Syria saw investors park their cash in traditional stores of value, like bullion.

Spot gold rose 1.2% to hit a three-and-a-half month high at $1,433.85 a troy ounce in early trade. At this level, the metal was up 21% on June’s near three-year low at $1,180.20 an ounce. An asset is considered to have moved into a bull market when its value rises at least 20% from a recent trough.

Speculation about a military possible strike against Syria rose overnight as U.S. officials said privately that a flood of previously undisclosed intelligence, including satellite images and intercepted communications, erased any last administration doubts that the Syrian regime had used chemical weapons against its own people.

The current U.S. position is reflected in U.S. Vice President Joe Biden’s remarks on Tuesday when he said there is “no doubt” the regime of Syrian President Bashar al-Assad was behind chemical-weapons attacks last week and must be held accountable.

Gold prices drew strength from the heightened Syrian tensions, as demand for traditional hedges against wider market insecurity rose.

“The move in gold back into bull market territory, following a 20% rally since the end of June, clearly highlights the level of risk aversion in the markets at the moment,” said Craig Erlam, a market analyst at Alpari U.K. “As [Syrian] tensions continue to grow over the coming days, further gains in gold are likely, with $1,450 an ounce being the next key level, followed by May’s highs around $1,487 an ounce.”

Gold prices were also spurred this week by news that central banks have been stocking up on the precious metal.

The central banks of Russia, Azerbaijan and Kazakhstan returned to the gold market once again last month, topping up their stockpiles of the precious metal as prices traded near three-year lows.

Russia, one of the world’s largest owners of gold bullion, increased its holdings by the most since April, adding more than 200,000 ounces of the metal to its official reserves, which now stand at 32.2 million ounces, according to data from the International Monetary Fund.

Central banks, largely in developing economies, have increased their gold holdings over the past few years as debt crises have helped put pressure on reserve currencies, such as the U.S. dollar and the euro.

“In line with our view that emerging market central banks will continue to accumulate gold as an important cornerstone to reserves, this is one of the factors that will continue to underpin gold demand in coming years,” said analysts at ANZ.

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