Gold Advances to One-Week High as Ukraine Unrest Lifts Demand

May 14, 2014 2:46 pm ET

May 14 (Bloomberg) -- Gold futures rose to a one-week high as mounting political unrest in Ukraine boosted demand for the metal as a haven asset.

Ukraine “is as close to civil war as you can get” and a solution must be found that satisfies all regions, Russian Foreign Minister Sergei Lavrov said today. Bullion has climbed 8.6 percent this year after Russia annexed the Crimean peninsula in March, followed by clashes between pro-separatists and government forces in nearby eastern regions of Ukraine.

The conflict has revived demand for the metal after prices tumbled 28 percent in 2013, the biggest annual decline since 1981, as equities rallied and the U.S. economy accelerated. “While we remain bearish on gold, escalating geopolitical tensions in Ukraine have offset stronger” signs of growth this year, Goldman Sachs Group Inc. said in a report dated yesterday.

“Things between Ukraine and Russia are simmering, and that leaves gold poised to go higher,” Frank Lesh, a trader at FuturePath Trading LLC in Chicago, said in a telephone interview. “People want to hold gold like an insurance policy, because it’s still unclear which way things are going to there.”

Gold futures for June delivery climbed 0.9 percent to settle at $1,305.90 an ounce at 1:58 p.m. on the Comex in New York, the biggest gain for a most-active contract since May 2. Prices earlier touched $1,309.20, the highest since May 7.

Bullion also advanced today after a government report showed U.S. wholesale prices in April rose by the most in more than a year, fueling concerns that consumer costs will begin to rise at a faster pace.

“The inflation data was hotter than expected, and that brings people back to gold,” Lesh said. “The bias in the market right now is to the upside.”

Fed Stimulus

In the past 12 months, gold has fallen 8.3 percent as the Federal Reserve curbed stimulus. Fed Chair Janet Yellen said this month the U.S. central bank’s four cuts in monthly bond purchases since November were “appropriate” because there is “sufficient underlying strength” in the domestic economy.

“We continue to expect a sequential acceleration in U.S. economic activity, and hence for gold prices to decline,” Goldman analysts led by New York-based Jeffrey Currie said in the report. At the same time, “the uncertain outlook in Ukraine may continue to delay this move lower.”

The bank reiterated it expects prices to drop to $1,050 in 12 months.

Silver futures for July delivery rose 1.2 percent to $19.775 an ounce on the Comex.