Gold tops $1,430 on Syrian jitters before pullback - Wealth Managers

Middle East demand to become long-term" if conflict extends beyond brief strike, analyst says

Gold prices rallied above $1,430 to hit 3-1/2 month highs Wednesday before pulling back near $1,420 as the threat of an imminent strike on Syria by U.S.-led forces weighed on markets.

Bullion hit a peak of $1,433.31, its highest level since May 14, and prices are up about 8% on the month -- the biggest monthly climb since January 2012. Gold is now up more than 20% from the low of $1,180 it hit in late June. 
Stampede into safe-haven buying
What are some of the experts saying about gold's recent move above $1,400?
* "There's nothing like the threat of military action to bring buyers back to gold," said Richard Gotterer, managing director at Wescott Financial Advisory Group.
* "The gold and silver markets are going through a period of higher volatility, having strongly advanced for two solid weeks, but generally they are benefiting from their safe-haven status and the trend is definitely higher," said Gene Arensberg, editor of the Got Gold Report.
* "The latest move upwards is certainly related to safe-haven buying on the back of a potential attack on Syria," ABN Amrocommodity analyst Georgette Boele said. "But you already had a turnaround in sentiment around a week ago when people started to get nervous about the timing of the Fed tapering." 
* "We are seeing safe-haven buying across the board," saidBernard Sin of bullion refiner MKS (Switzerland) SA. "Geopolitical uncertainty triggered this buying interest."
* "Long-term, I think investors will return to the mood of the last 12 years," said Angelos Damaskos of the Junior Goldfund. "As stocks have reached all-time highs, companies will fail to deliver promised earnings and dividend growth, which will provide the next catalyst for an upward trend in gold that will go beyond current levels."
Mideast demand for gold could skyrocket
Respected analyst Julian Phillips of GoldForecaster.comsaid Syria has helped gold's rebound gain steam, but the length of any conflict there could affect the momentum of its rise.

"The gold price is consolidating at this level of resistance and may hold there to build up strength for the move up," he said.
"Syria is a Middle East factor that is only temporarily adding to demand. (But) without Syria the gold price would rise. Syria may simply accelerate that rise." The market in gold and silver "has not only turned, but its trend has changed."

Phillips said he sees investors buying gold as a result of this growing situation in Syria "coming from the Middle East primarily and potentially central banks, not Indian or Chinese investors." And this demand "comes in addition to Asian demand ahead of the seasonal rise in gold demand.

"If the intrusion by the U.S. is limited to specific targets on a once-off basis then this demand is not expected to be lasting," he said. But "if it escalates, then we expect Middle East demand to become long-term."
Bad housing report a speed bump for tapering
Meanwhile, in the U.S., a new housing report is calling into question the health of the recovery and the speed at which the Federal Reserve might be able to taper its stimulus programs. Contracts to purchase previously owned U.S. homes fell for the second straight month in July, a sign that rising mortgage rates are taking the steam out of America's housing market recovery. The National Association of Realtors said Wednesday that its Pending Homes Sales Index, based on contracts signed last month, decreased 1.3 percent to 109.5.

"Higher mortgage rates (are) beginning to take some bloom off the buoyancy in the housing market," said Millan Mulraine at TD Securities in New York.
Syria crisis puts Fed "in a fix"
MarketWatch columnist Matthew Lynn argues the Syrian crisis will force the Fed to slow or even halt its stimulus plans."The threat of an end to QE in the U.S. had started to create a crisis in the emerging markets. Now the threat of military action in Syria will intensify the downward spiral. That is going to spread to Europe next. It is already lapping at the shores of the continent's peripheral countries.

As the turmoil grows worse, it will stop global growth in its tracks. And the net result? The Fed will carry on printing money longer than it planned to. It won't have any other choice. ...

If the emerging-markets crisis spreads, and if a military intervention in Syria pushes up the price of oil, then the euro zone will be pushed back into recession as well. Very quickly, 70% of more of the global economy could have ground to a halt.

Where does that leave the Fed? In a fix. In reality, the U.S. cannot simply shrug aside an emerging-market crisis or a conflict in the Middle East as a matter of little consequence. Its own growth depends on trade with those nations, and so does the stability of its banking system. With no expansion in those markets, U.S. growth will evaporate, and with it the case for the taper."
BMO sees potential for $1,500 gold
"Even if the Fed confirms some tapering of bond purchases after the September FOMC meeting, which continues to beBMO's expectations, there could be limited downside for gold prices as tensions in the Middle East intensify over coming weeks," commodity strategist Jessica Fung said, saying bullion has support at $1,400. "In addition, the imminent debt ceiling debate in the U.S. provides support to precious metal prices." Gold could get back over $1,500 if Middle East tensions continue to escalate, the Fed maintains quantitative easing next month, and the debt ceiling debate drags on for an extended period of time. 
With the rupee in India hitting its lowest levels in two decades, making gold more expensive in that currency, "demand for physical gold in Asia slowed this week," Reuters reported. What's unknown is how much buying will pick up once festivals start next week there and in China. But with their currency collapsing, it seems natural that many Indians will seek shelter in gold when imports resume. A similar dynamic has occurred in Iran as its currency collapse under Western sanctions sent demand for physical gold soaring.
Coin sales soaring at top European mint
One place that is seeing demand surge is Austria, home of theMuenze Oesterreich AG, the mint that makes Philharmonic coins. Sales of gold coins from January to July rose 79% from a year earlier to 383,500 ounces, it said, almost matching those for the whole of last year of 400,000 ounces.

"As soon as the gold price went down, many individual buyers thought: 'Now it's the best time for us to get into the gold market,'" said Andrea Lang, the mint's marketing director. "People feel a little insecure about the whole economic situation over Europe and they are worried the interest that banks give them is now quite low," said Lang. "These are two very good motives to buy gold."

"Mints from the U.S. to the U.K. reported a surge in sales after gold's plunge into a bear market lured buyers,"Bloomberg noted. "The U.S. Mint's sales of its American Eagle gold coins rose 82% this year through the end of July to 679,500 ounces from a year earlier, according to data from the U.S. mint. Sales peaked at 209,500 ounces in April, before dropping back to 50,500 ounces in July. Britain's Royal Mint saw its gold-coin sales triple in April, while Australia'sPerth Mint, which refines nearly all of the nation's bullion, said that month that demand jumped to the highest level in five years.
South African strike highlights mining woes
Meanwhile, gold shortages could be exacerbated as South African miners threaten to strike in one of the world's top-producing nations. South Africa's National Union of Mineworkers will give gold producers on Friday a 48-hour notice of its intention to strike over deadlocked wage talks, a source said Wednesday.

Rising mining costs and supply shortages should support prices, one executive said. "The real bottom of the gold price will come not from the demand but from the supply side,"Polymetal CEO Vitaly Nesis told CNBC on Wednesday. "The structure of the industry is such that any gold price below $1,500 per ounce will in the medium term lead to massive closure of producing capacity. That's why over the longer period of time, let's say three years, I am quite confident there is no way that gold can go below $1,500 per ounce. The industry will just not survive that level of pricing."
"The stars kind of align around $1,500"
Remember that gold should be held for the long haul, both for the possibility of capital appreciation but also as a hedge against inflation and stock crashes. "We don't look at gold as a trading vehicle. I think you should look at gold as an investing vehicle," Mike McGlone of ETF Securities said. "We think this whole correction within a really significant bull market. … The stars kind of align around $1,500 in gold and S&Ps. That's basically where the 200-day moving average is. That was where support was on the way down. So once we get to near $1,500, people who have short-term profits can taken them. Bigger picture, we think this is just a correction within the bull market."
 
'70s parallel takes gold to $3,500
How high could the bull market run? Far, says Citi's top technical analyst, Tom Fitzpatrick. In a new interview withKing World News, Fitzpatrick reiterated his view that the yellow metal could head to $3,500:
"Within the gold dynamic, we believe this recent correction was very similar to what the gold market witnessed from 1974 to 1976 -- as the equity markets recovered from the bear market bottom in 1974. In this instance, very recently gold went 14% below the 55-month moving average, exactly as it did back in 1976. After the low in gold in 1976, the equity market peaked four weeks later. So far, following the $1,181 low in gold, the peak in the equity markets has been five weeks thereafter. And as we started that historic upward movement in gold, beginning in 1976, this was also when the equity market peaked and went into a corrective phase, and that is when gold really came into its own.

"So we believe we are back into that track where gold is the hard currency of choice, and we expect for this trend to accelerate going forward. We still believe that in the next couple of years we will be looking at a gold price of around $3,500."

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