Gold Price Rises Amid China, Middle East Worries
Gold is living up to its reputation as a safe haven in the first days of the new year, Commerzbank says
By KATHERINE DUNN
The Wall Street Journal
Jan. 5, 2016 6:55 a.m. ET
LONDON— Gold prices rose Tuesday as instability in the Middle East and concerns over Chinese growth fueled further safe haven buying.
Spot gold was up 0.19% at $1,077.20 a troy ounce in morning European trading, extending a 1.4% price gain the previous day. On Monday, gold settled up 1.4% on the Comex division of the New York Mercantile Exchange, on the first day of trading for the new year.
Gold’s gains came as global equity markets continued to follow Chinese shares lower, and amid rising tension in the Middle East over the execution of an Iranian cleric in Saudi Arabia on Sunday.
The fallout from that widened on Tuesday, as Kuwait followed a number of Gulf countries and announced it would recall its ambassador from Iran.
“Gold is living up to its reputation as a safe haven in the first days of trading in the new year and is continuing to profit from the geopolitical tensions in the Middle East,”Commerzbank wrote in a note.
On Monday, a 7% drop in mainland Chinese stock markets triggered circuit breakers. On Tuesday, the Shanghai Composite stabilized, falling 0.3% after the Chinese central bank injected $19.9 billion in short-term funds to calm the market.
Safe haven buying is unlikely to provide more than a short-term boost amid a bearish picture for gold, said Carsten Menke, commodities research analyst at Julius Baer.
UBS said gold’s recent performance as a safe haven has disappointed the market. Last year, several market shocks, from steep stock market declines to civil war in Ukraine, did little to boost the price of the precious metal.
“Investors are understandably hesitant,” the bank said in an note.
Instead, investors are likely to refocus on the factors that pushed gold lower through 2015, such as rising U.S. interest rates and a stronger dollar.
Rising interest rates make the metal less competitive against interest-bearing instruments including Treasurys, while a stronger dollar makes gold more expensive for investors who hold other currencies.
On Tuesday, the WSJ Dollar Index, which measures the dollar against a basket of other currencies, was up 0.22%.
Write to Katherine Dunn at Katherine.Dunn@wsj.com
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