Monday, March 21, 2011

Gold Moves Up On Coalition Air Strikes And Consequent Rise In Oil

The big story of the weekend, undoubtedly, was the Coalition forces bombing Libyan anti-aircraft defenses and crippling the Gadaffi regime's air force. The Arab League expressed regrets about lobbying for the air strikes, but also said they're still supporters. There's some controvery over whether an air-strike maneuver hit Gadaffi's compound. The U.K. government isn't ruling out an attack on Gadaffi himself.

This action could be seen as bad for gold. Such was the case in late 1990 and early 1991, when Saddam Hussein's forces took over Kosovo and the first Coalition assembled to drive them out. Gold climbed on the worry that it would be a long and protracted war, and tumbled when it was clear that the Republican Guard was basically scattering under the assault.

Unlike then, though, gold rose on this weekend's action. The metal jumped up to $1,425 from the get-go and stayed above that level for the entire overnight session. Descending back down after a gentle rise last night, it got its second wind and ascended above $1,430 around 7:30 as the action continued. As of 8:17, the spot price had fallen back to $1,429.80 for a gain of $10.10 since Friday's close. The Kitco Gold Index attributed +$11.40 to predominant buying and -$1.30 to a strengthening U.S. dollar.

The U.S. Dollar Index strengthened a little after last Friday's slide. Beginning yesterday's resumption with a steady run up to 75.7, it fluctuated between that level and 75.6 with little movement beyond either boundary. As regular trading came up, it sagged a little below the lower boundary: as of 8:23, it was at 75.57.

A Bloomberg report ties in the rise in gold with one in oil, as it's feared that the air strikes will have the effect of making oil more expensive.
As “tensions in the Middle East and North Africa region increase, the precious metals, particularly gold and silver, could be poised for further gains as investors seek to diversify towards safe-haven asset types,” James Moore, an analyst at in London, said in a report....

“Gold is firm this morning in the news out of Libya,” said Dennis Gartman, an economist and the editor of the Suffolk, Virginia-based Gartman Letter. “A weak dollar does tend to give way to stronger commodity prices.”
The article also says that the Coalition believes Gadaffi's air force is effectively grounded as a result of the two-day bombings.

An earlier Reuters report ascribed gold's rise to the same cause, while also mentioning unrest bubbling up in Yemen and Syria.
"Obviously the tensions in the Middle East, coupled with the significantly weak dollar against the euro, help give gold the current boost," said Darren Heathcote, head of trading at Investec Australia....

"If the dollar remains weak and we get further unrest in the Middle East, there is a very reasonable chance for gold to test the record high," said Heathcote.
The article also notes that some steps are being made to contain the damaged reactors. Holdings of the SPDR Gold Shares Trust, influenced by the Libyan crisis, jumped by 9.1 tonnes on Friday to 1,226.4 tonnes.

A Wall Street Journal article concurs with the other two.
"The return of Middle East tensions to the spotlight this weekend, with Col. Moammar Gadhafi's promise of a 'long drawn-out war,' and the ongoing ramifications of Japan's natural disaster are helping gold start the week on a positive tone," said UBS analyst Edel Tully.

"As long as tensions remain elevated, gold should remain bid," she added/ She said she remains comfortable with the bank's one-month forecast of $1,450 an ounce.
Gold making that forecast would mean it making a new record high. The article also quotes Dennis Gartman as saying that he preferred to stay on the sidelines, watching and waiting, despite the fact that he is a long-term gold bull.

With no U.S. economic news huddling in the shadows of the Libyan war, gold moved to the continuance of the war. Rebounding from its slide to just below $1,430 before regular trading began, the pit session's opening took momentum from gold's upwards jump last night for essentially the same reasons. As of 8:45, the metal bumped up against $1,436.10 but failed to hold above $1,435. A sink in the greenback helped energize the metal As of 8:45, the spot price was $1,433.10 for a gain of $13.40 since Friday's close. The Kitco Gold Index split the gain into +$12.55 for predominant buying and +$0.85 for a weakening greenback. The U.S. Dollar Index's sag turned into a slide as it reintroduced itself to 75.5. As of 8:48, it was at exactly 75.50.

Unlike back in '90 and '91, gold is thriving on the quick and efficacious military operations against the tyrant of the day. There's still fear that the Libyan war will have the effect of interdicting some oil, which would spark oil-aggravated price hikes. There's also the unasked question of how the war will be paid for. When this point is raised, the U.N. not authorizing ground troops makes a different kind of sense.

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