After worries of increased military action along the Ukraine border, gold futures were held in check by a strong U.S. dollar. Fears of rising conflict in the Ukraine put global equities under immense pressure and increased the demand for assets thought to be an insurance against risk. Geopolitical conflicts have assisted gold in gaining 7.3 percent this year.
Tensions in Ukraine push gold futures higher
As Poland reported that the risk of Russia invading Ukraine has increased in the "last dozen hours or so," according to Bloomberg, Russian President Vladimir Putin ordered his government to react to the U.S. and European sanctions due to an increase of troops placed on the country's border. After the first day of a 72-hour cease-fire, Israel withdrew troops from the Gaza Strip.
"There is a modest underlying fundamental weakness to the gold market that tends to see it drift down but it's not powerful enough to offset sporadic geopolitical buying," Macquarie analyst Matthew Turner said, according to Reuters.
Gold for December delivery increased 0.4 percent to $1,290.10 an ounce on Wednesday on the Comex in New York. It recovered from $1,281 on August 1, the lowest since June 19. Bullion was up 0.1 percent to $1,289.43 in London for immediate delivery, according to Bloomberg. Spot gold was up 0.2 percent to $1,289.66 an ounce.
Waves of geopolitical tensions in Ukraine and the Middle East have been the leading cause of the precious metal's seven percent gain year to date, as this unrest has lowered investors' appetite for risk.
David Govett, head of precious metals at Marex Spectron Group in London, said in a note on Wednesday, "With the Russians once again massing troops on the Ukraine border and the world watching to see if Israel/Hamas keep to the cease-fire, I doubt many people will want to short gold here. A stronger dollar curbed the appeal of precious metals," according to Bloomberg.
Meanwhile, September silver rose 0.10 percent to trade at $19.858 per troy ounce, while palladium dropped 0.11 percent at $847.40. October platinum was up 0.14 percent at $1,457.90.
Strengthening U.S. economy raises price of gold
Gold prices have fallen from a three-month high set July 10 amid signs the U.S. economy is improving.
Bullion closed a 12-year rally in 2013 amid expectations that as the economy strengthened the Fed would slow stimulus. Federal funds futures contracts show an approximate 69 percent probability that by September 2015 the central bank will raise its benchmark to 0.5 percent or more.
Bullion investors will keep a close eye on U.S. data releases after last week's mixed results showing second-quarter gross domestic product significantly rebounded even though employment growth in July lagged.
The US Dollar Index, was up 0.25 percent on Tuesday, following the improving US readings and worsening EU figures. On Wednesday the gauge was unchanged at 81.64.
Chen Min, a precious metals analyst at Jinrui Futures in Shenzhen said, "Gold could face difficulty breaking through $1,300 because the dollar is doing really well. The only supporting factor is geopolitical tensions, and unless tensions escalate drastically over Ukraine, gold won't be able to gain much," according to Reuters.
Dealers have reported that premiums in gold's top buyer, China, have been lingering between $2 to $3 an ounce as demand has slowed compared to last year. According to a leading precious metals consultancy, in the second quarter, Chinese gold jewelry demand dropped for the first time in eight years and could decrease up to 20 percent through the end of the year.
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