Gold fell again today after the Institute for Supply Management’s non-manufacturing index hit 58.6 when the consensus expected it to drop 55. Anything above 50 is a sign of expansion, so this development makes it more likely that we will see tapering in the near future, reports Debarati Roy for Bloomberg.
Gold price in flux
“Stronger U.S. data is getting the market jittery again,” Tom Power, a senior commodity broker at R.J. O’Brien & Associates, told Roy in an interview. “The strength in the dollar is working against gold.”
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Seen as a safe haven investment, the price of gold is currently in flux. American financials continue to surprise to the upside, causing investors to pull money out of gold, emerging markets, and other alternatives. Emerging markets are seeing outflows because of their high risk, which many think is being priced in appropriately, but gold is losing value because it generally doesn’t give strong returns. It’s used more often to preserve value than create it.
At the same time, the possibility of a U.S. strike in Syria spiking oil prices and disrupting trade has others putting money into gold until the situation blows over. While most people expect limited strikes (if any), the possibility that U.S. action will trigger a regional war can’t be ruled out entirely.
Consequences of air strike on Syria
Gold futures for December fell 0.7 percent when the ISM non-manufacturing index numbers were released, after it rising 0.7 percent when the Senate Foreign Relations Committee sent a bill to the Senate that would give Obama authority to strike Syria. If Bernanke announces that tapering is going to start this month it will likely depress gold prices further, while the Senate wide vote on Syria (next week) and House deliberations (expected to take place two weeks from now) could drive it back up again.
The economic recovery and end of qualitative easing give investors plenty of reason to move out of gold in the medium term, but geopolitical tension could cause a series of short term price spikes that a savvy investor could try to take advantage of. Contrary to its reputation, gold might be the risky bet right now.