Gold price jumps to 3-month high

On Monday, gold jumped to a three-month high lifted by renewed safe haven buying, a turnaround in sentiment among large futures investors and fresh indications that a limp US economy may push the first rate hike in nine years further into the future.

On the Comex market in New York, gold futures with December delivery dates traded up just over 1% for a session high of $1,169.10, the highest since July 6, before paring some of its gains in late afternoon trade.

The metal was boosted by higher oil prices and safe harbour buying on Monday due to escalating violence in Syria where the conflict, now in its third year, is beginning to look a lot like the many proxy wars fought between the US and the Soviet Union during the Cold War.

After another day of airstrikes by Russian forces targeting rebels fighting its ally Syrian president Assad, the US dropped more than 45 tonnes of ammunition for the same groups which are also fighting the jihadist group ISIS in the region. A terrorist bomb attack in Turkey over the weekend also increased the chances of the conflict spilling over into neighbouring countries to an even greater extent.

Gold is now up more than 5% from where it was trading before the US Federal Reserve at its September meeting decided to hold rates steady. The last time rates were hiked was June 2006 and Fed minutes released last week suggested that the US economy will grow well below historical averages for the rest of the decade.

The dollar and gold, and bond yields and gold, have strong negative correlations and on Monday the greenback fell against the currencies of its major trading partners.

Hedge funds were wrong-footed by the decision to keep interest rates near zero reducing bullish bets to more than five year lows ahead of the Fed decision.

But sentiment has now turned and according to the CFTC's weekly Commitment of Traders data for the week to October 6 large speculators on Comex – referred to as "managed money" – added nearly a fifth to their bullish positions from the week before.

The week before hedge funds more than doubled net longs which now stand at just under 5 million ounces, the highest since April. Speculators also cut back on short positions – bets that gold could be bought cheaper in the future – reducing overall positions to 7 million ounces, down from record highs above 11 million ounces set in July.

Image Caspian Report