Gold surprised many by jumping to a two-month high Thursday, bolstered by Fed Chair Janet Yellen’s remarks, a lower dollar and jitters over Iraq, experts said.
Gold for August delivery gained 3.3 percent, its biggest one-day advance in about nine months.
Here are highlights from comments by analysts and money managers:
“A huge move reminiscent of the blast-off phase in late 1978 when gold exploded from a low of $193.40 in November to a high of $875 in January 1980 — a parabolic 352 percent move higher in the price of gold in a tad over two short years,” Larry Edelson, editor of Real Wealth Report, Power Portfolio, and Gold and Silver Trader.
“It started with short covering, and then people began coming off the sidelines,” Axel Merk, head of Merk investments LLC in Palo Alto, Calif., was quoted as saying in the Wall Street Journal. “When gold starts to rally, people are worried about missing out.”
“The Fed statement and geopolitical tensions sparked a frantic reversal in market sentiment. Investors are now bullish instead of bearish on gold,” Phillip Streible, senior commodities broker at Chicago-based RJ O’Brien, told Reuters.
“Yesterday’s $50/oz move higher was mainly due to higher inflation expectations in the U.S. and the fact that the Fed was not able to cool them,” ABN Amro analyst Georgette Boele said, according to Reuters. “That was coupled with oil moving higher on the back of tensions in Iraq,” she added. “As prices moved very quickly higher yesterday we had stop losses triggered and short-term traders taking profits.”
“Yellen’s words worked like magic for the gold market, which has otherwise been very lackluster,” Dan Denbow, a portfolio manager at the $1 billion USAA Precious Metals & Minerals Fund in San Antonio, told Bloomberg News. “The political turmoil in Iraq and Ukraine continues to provide support, but the main reason for the rally is Yellen.”
“There have been too many bears in the woods this year due to very strong stocks, and funds had been under-invested in gold for some time, George Gero, vice president with RBC Capital Markets Global Futures, told Forbes. “With all the turmoil in the Middle East, Ukraine-Russia, inflationary crude and softs, clients are asking fund managers if they are returning to gold.”
“For gold, I think the behavior of the price move suggests it was largely short-covering. The U.S. dollar was a little weaker overnight, but also U.S. treasury yields moved higher, which would usually see gold lower. This makes me think it was an isolated move,” Victor Thianpiriya, commodity strategist at ANZ told CNBC.
The Fed’s unwillingness to commit to raising interest rates and the conflicts in Ukraine and Iraq, which have raised energy prices, are “gold friendly, and have conspired to push up the price,” Robin Bhar, head of metals research at Société Générale, told The Financial Times. “But it looks like the buying was short covering by speculators more than anything else.”
“In the background, the unwind of China’s commodity financing deals may be helping to boost the price of gold as Chinese speculators sell their physical gold and at the same time buy back their hedges in the futures market,” Marshall Gittler, head of global foreign-exchange strategy at IronFX, wrote in a note, according to Market Watch. “This mechanism assumes that the paper market dominates the pricing of gold rather than the physical market, which seems possible given the difference in volumes,” he said.
The Money and Markets Team