Can Gold continue to rise?

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Oil prices strengthened again after last week’s retreat as tensions in Libya and other countries in the Arab world continued. The front month WTI crude oil contract rose above 103 for the first time in 6 days. Corresponding Brent crude oil contract also recovered. The IEA said that unrest in Libya is beginning to impact European oil supplies and they expect the situation could worsen if violence persists and the demand from Europe should improve through February and March.

Hopes that the fighting in Libya subsided after Venezuela’s peace offer failed as rebels rejected the plan. Fighting continued in capital Tripoli and other places in the country. At the same time, The International Criminal Court said they suspect Libyan leader Qaddafi and his sons of crimes against humanity. The prosecutor will investigate between 10-20 people including Qaddafi, members of his family, the foreign minister and the heads of security and military intelligence. Stability in Libya and the Middle East is a long way off.

Gold prices climbed higher. However, because of the ECB’s potential rate hike in April, we saw a sharp selloff in gold and other precious metals. The US Fed’s Quantitative Easing and other ultra easy fiscal approaches have shaken investors’ confidence towards fiat currencies and led them to hard assets such as gold and silver. Over the last few weeks, inflationary fears have heated up and has given gold another boost.

While gold has recently been boosted by geopolitical tensions in the Middle East, the market will shift its focus back to monetary policies once the tensions fade. The ECB kept its main refinancing rate unchanged after taking it to as low as 1% in May 2009. However, at the meeting yesterday, ECB President Trichet for the time signaled a rate hike should come next month. This move is earlier than expected. If the climate of low rates is going to change soon, gold’s strength may be affected. Further, if inflation can be curbed, demand for gold as an inflation hedge will reduce. There is another reason for gold, as well as other precious metals, will decline sooner or later.

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Published by Editorial Team
ForexPromos Editorial Team is comprised of a selection of hand picked editors that bring you the latest breaking news from the financial markets. We also provide forex educative articles as well as comprehensive fx broker reviews.

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