Gold Higher on Unrest in Iraq

Wednesday, 18 June 2014
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Published in Gold Investing
Gold Higher on Unrest in Iraq Eon Productions.

Gold came off its highs earlier in the week, to stabilize early Wednesday with prices up $0.80 to $1,271.22, and silver up $0.03 to $19.77.

The surge in gold prices trimmed the Dow/Gold Ratio to 13.19, indicating gold gained ground against the Dow in a zigzag trading week. Silver managed a good surge, trimming the Silver/Gold ratio to 64.3, with silver benefiting from its dual role as both a precious metal and an industrial metal. Even though prices are down slightly from their highs, all in all it’s been a good week for gold and silver.

Fiscal-Cliff

The surge in gold prices is almost certainly short covering by speculators, who don’t want to get caught short if the Sunni militants in Iraq make it as far as the southern oilfields and transport facilities. If that happens, we could be looking at $200 oil in the rear view mirror —and an explosion in gold prices. That’s pretty powerful incentive to cover your short bets on gold, which were running into headwinds even before the crisis in Iraq.

The World Gold Council announced they’re convening a gold industry group to explore reform of the London Gold Fix.

While there’s nothing like a little unrest in the Middle East to strike a little fear into gold shorts, there are other big changes afoot for gold that could have a very large, and positive, impact on gold prices.

The World Gold Council, the marketing body for the industry, announced today that they’re convening a gold industry group that includes miners, gold traders, central banks, and other interested parties to explore reform of the London Gold Fix. To-date the London Fix, the twice-daily snapshot of auction prices, has been the benchmark for gold prices. Today that vaunted institution may be on its way out for good, and that’s good news for gold investors.

Critics of the London Gold Fix, including yours truly, have criticized it for a lack of transparency and for vulnerability to manipulation; and starting on July 7th, the World Gold Council will be on its way toward revamping the century old index.

The London Silver Fix will be gone in August, and 10 organizations have submitted plans to take over that benchmark.

Having the benchmarks for precious metals out of the hands of big banks can only be a good thing for gold and silver traders. It’s hard not to wonder if this move by the Gold Council isn’t as much about updating its indices as it is reacting to demands from China for a more equitable and transparent system for setting gold and silver prices. With China most of the way through a process for setting up its own gold and silver exchange, it seems likely the Gold Council is moving to keep the bulk of gold trade from shifting to Asia.

It just seems odd that the London Fix has limped along, outdated for at least 40 out of the last 100 years; and now they want to fix it, just as China is about to come out with an announcement that they are the largest holder of gold reserves on the planet. That can’t be a coincidence.

For sure any change that’s more transparent is going to be a plus for gold and silver traders; and look for prices to react positively as the Gold Council moves forward with a new plan to set the price of gold on world exchanges.

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Trevor Gerszt

Trevor Gerszt has been passionate about gold since childhood. Growing up in South Africa, the world’s second largest gold producer, Gerszt spent his youth collecting gold coins. Surrounded by a family of experienced coin collectors, he gained valuable insight about the precious metal.