Gold Strengthens on Rising Russian Geopolitical Risk

By: Mark_OByrne

Gold finished trading in New York  yesterday at $ 810.30,  down 50 cents  and silver was  down  10 cents to $1 3. 03 .  G old and silver  then r alli ed in Asian trading  and early European trading . Gold is trading at $ 821.30/ 821 70 per ounce (1 0 45 GMT).

Gold is finding favour again with the dollar having weakened again (as low as 1.4829 to the Euro) and oil prices rising (London Brent Spot has surged 3.45% to over $113). Also risk aversion is rising again due to increasing financial (Fannie, Freddie and Lehman), macroeconomic (stagflation) and geopolitical risk (Russia- Nato) which has resulted in weakness in international equity markets.

Geopolitical risk has escalated significantly on the continuing Russian Georgian crisis. Nato has suspended formal contact with Russia and Russia is reconsidering relations with Nato. Russia has reacted angrily to the US-Polish missile pact. Russia's foreign minister said that Russia "would have to react" to the agreement and "not only through diplomatic protests".

Vladimir Putin has warned Ukraine that if it were to join NATO, "Russia will have to point its warheads at Ukrainian territory." Meanwhile Venezuela, Syria and Iran are aligning themselves with Russia. President Assad has said that Israeli assistance to Georgia shows that Russia and Syria should bolster military cooperation. Venezuela's Chavez  is also aligning himself with the Russians. Chavez said at the weekend  that Russian President Dmitri Medvedev wanted to send a Russian naval fleet to visit Venezuela and that the Russians naval fleet would be welcome in Venezuela. Venezuela has been seeking closer relations with Moscow, in part to buy military hardware, including 24 Russian Sukhoi fighter jets recently delivered .

Geopolitical risk is higher now than at any time since the end of the Cold War and looks set to remain heightened in the coming months. This will be a contributory factor in markedly higher gold prices in the coming years and months. 

Today's Data and Influences
UK retail sales figures out at 9.30 are expected to show a 0.2% decrease in retail spending in July following a record decline of 3.9% in June. Flash manufacturing PMI figures just released from France and Germany came out weaker than expected with France reporting a contraction in manufacturing activity over the last month.

Gold and Silver
Gold is trading at $ 8 21 . 3 0/ 8 21 .7 0 per ounce (1 0 45 GMT).
Silver is trading at $1 3. 4 6/13. 5 0 per ounce (1 0 45  GMT).

PGMs
Platinum is trading at $13 88 /13 98 per ounce (1 0 45 GMT).
Palladium is trading at $2 8 5 / 2 90 per ounce (1 0 45  GMT).

By Mark O'Byrne, Executive Director

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