Gold Price Rise Sharply to 7-Week High on Mid-August

Egypt Crisis

Gold price ended the Thursday’s trading session rallying high, closing at $1,365 per ounce, a fresh 7-week high. The yellow metal lured investors as the safe-haven on sell off in the U.S. equities,  Egypt Crisis, and early Asian demand. Technical buying also participated in the fray as gold breached key resistance levels.

The situation in Egypt was the main headline in most news agencies. On June 30, an estimated march of 22.1 million called for the resignation of Mohamed Morsi, the Muslim Brotherhood (MB) democratically elected president after January 25 revolution on 2011. On July 3, after Morsi refused to step-down and gave a speech threatening the protesters with violence the day before, the protesters asked the head of the Egyptian Armed Force, Chief General Abd El-Fattah El-Sisi, take action and prevent the potential bloodshed. The General, after counseling the most influential civil and religious figures, announced suspending the constitution for 6 months and the head of Supreme Court, Adly Mansour, as an interim president till the constitution being amended.

The MB camped in 2 major sit-ins calling for Morsi’s return to the presidential palace. During the sit-in, violence started to surface, as the MB and their supporters abducted, tortured and killed over 20 documented cases within the sit-ins, other than pro-Morsi demonstrates terrorizing major cities in Egypt resulting in deaths of dozens. On July 26, over 30 million went to the street to mandate security forces to crack down on MB and their allies’ terrorism. On August 14, the police dispersed the sit-ins to confiscate the weapons and arrest MB leaders for criminal activities. The MB retaliated by escalating the violence resulting in the death of 638 deaths, among them 43 police men and 23 military personnel. The situation escalated as the U.K., France and Australia moved on the international level requested an emergency meeting of the U.N. Security Council. The U.S. President announced canceling the joint military exercise with Egypt. The consequences of the U.S. official actions might lead to shifting Egypt alignment to Russia as it was before the 1970s or China. In Egypt, the situation is tense as they are sensitive towards foreign interference in their affairs. This country has been invaded, occupied, colonized and dragged to foreign wars for pretty much half its history, which is a few thousand years.

As of the country’s importance, Egypt controls Suez Canal, a major trade-rout and a good percentage of the world’s oil traffic percentage and other commodities pass through. It is the strongest military power in Africa and the second largest in the Middle East. Moreover, Egypt is the U.S. largest Arab ally and friend-nation in the region; including military cooperation and trade partnership. It was the first Arab nation to sign a peace treaty with Israel. This treaty was the mark of the fundamental shift in politics in the region. Therefore, turbulence in Egypt might affect the U.S. and the Middle East. Speculations about how involved the Obama administration in Egypt supporting the MB might also affect the U.S. internal affairs.

The U.S. jobless claims and consumer price index came as expected. However, the U.S. economic data failed to move the markets notably. The USD was also lower on Thursday, and crude oil rose. Still, traders believe the Feds are more likely to start tapering the bond purchasing program known as Quantitative Easing (QE) by September. St. Louis Fed President, James Bullard, said there is uncertainty about this timing and nothing significantly moved the markets.

Although 2013 second quarter (Q2) demand on gold fell by 12% and supply fell by 6% year-on-year, the demand on jewelry rose by 37% from 420.8 tonnes to 503.9 tonnes. Most of this demand was shifting further to the east with China and India as top consumers by more than 50% increase in consumption. The Middle East also reported a surge in demand by over 33%. The demand on gold bullion coins and bars increased by 78% from 285.9 tonnes to 507.6 tonnes, mostly from Asia as well.

Gold price rise on safe-haven purchases and physical demand, breaching key resistance levels at $1,330 and $1,350 triggered technical buying. Gold was traded high around $1,340 level during Asian trading hours and $1,360 during U.S. trading hours.

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