Gold prices are flat to slightly higher to begin the new trading week. There certainly is no shortage of things going on currently, however, that could potentially drive gold. Gold seems to be feeling some upside pressure, as shorts continue to cover and some larger buyers step into the market.
The situation in Iraq continues to be at the forefront of investor’s attention. Over the last few days, the government of Iran has sent troops into Iraq to help the Iraqi government security forces fight the rebels. The U.S. now appears to be considering direct talks with Iran in order to try and quell the rebellion. All in all, the current situation in Iraq has the makings of a full blown civil war and a geopolitical and diplomatic mess. Over the weekend, there were reports of further violence and additional victories by rebel forces in various Iraqi cities. The situation, unfortunately, could get a lot worse quickly and it appears that no one has the solution to end the fighting as of yet. This ongoing violence and uncertainty surrounding the area could continue to drive crude oil prices higher and keep a bid in risk assets such as gold and silver as well as U.S. bonds and notes. Oil is already approaching the $110 mark, and a break above could see oil prices jump to $120 or beyond very quickly. This, in turn, could potentially cause selling in global equity markets and also potentially drive buying in perceived safe-haven assets.
The situation in Ukraine will also continue to be watched closely. Russia has now cut off natural gas supplies to Ukraine in what appears to be a new phase in the ongoing conflict. Although the government of Ukraine says it can deal with this shortfall until December, if necessary, the idea of a supply cutoff to the country can have long lasting effects on not only Ukraine but other European countries as well. It would appear that both sides are digging their heels in and are ready to battle as long as necessary. While something will have to give eventually, this situation does not appear to be going away anytime soon and in fact seems to be escalating once again.
The IMF has cut its growth forecast for this year for the U.S. economy from 2.8 percent to 2 percent. Investors will have plenty of additional information to chew on this week as there is an FOMC meeting on Wednesday followed by the Chairwoman’s press conference. Gold, however, will likely continue to be driven by ongoing geopolitical developments.
