Continuing Middle East Political Uncertainty Could Offer Still More Support For Gold

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(Kitco News)- Egyptian President Hosni Mubarak may have resigned, but the potential for further political unrest in the Middle East remains a supportive factor for gold futures, particularly if a new crisis emerges.

“Despite the calmer times in Egypt, there is still the thought there will be more unrest or social upheaval in the Mideast in general,” said Frank Lesh, broker and futures analyst with FuturePath Trading. “We’re seeing some of that today with Algeria. The flight to safety is still there.”

Shortly before the close of pit trading, most-active April gold was $4.70, or 0.3%, higher at $1,365.10 an ounce on the Comex division of the New York Mercantile Exchange.

Following the Egyptian situation, traders are wondering which country might be the next to experience political unrest, Lesh said. There have been reports of protests and/or clashes in Algeria, Bahrain and others.

“We don’t know which populace or government is going to go next, but it seems to be the trend at the moment…,” Lesh said. “This is just the start of a big time of social unrest in the Mideast. That fact alone will certainly support the gold.”

Furthermore, the situation in Egypt is not resolved even though Mubarak finally relented last week to protesters’ demands for his resignation, said Mike Daly, gold and silver specialist with PFGBest. The military has assumed power, dissolving parliament until new elections can be held. Still, demonstrators likely are not yet satisfied and may not end their protests, for fear that the “revolution” would end, Daly suggested.

“The president has stepped down, but the military is in charge,” Daly said. “That’s not what they were looking for. They were looking for free and open elections. Six months may be a little bit longer than they wanted to wait. They thought it might be a lot sooner than that.”

Egypt is not a major oil producer. Still, the energy markets have been on edge in case the civil unrest should obstruct the transportation of oil from Persian Gulf nations through the Suez Canal or else through the Sumed pipeline from the Red Sea to the Mediterranean.

Should there be any disruptions, crude oil would skyrocket and precious metals follow, Daly said. “All eyes are on that part of the world right now.”

Gold isn’t soaring to new highs, but nevertheless it remains underpinned.

“It’s not a ‘let’s all pile into it,’” move, Lesh said. “It’s a slow, steady kind of build. It is a flight to safety, but it isn’t out of an extreme fear or event. There is a general feeling that the unrest may continue and spread throughout region. But of course, if there are any real serious riots or altercations between governments and populaces, it could shoot up pretty good.”

Ralph Preston, senior financial analyst with Heritage West Financial, suggested gold is trading sideways at the moment, waiting for a major catalyst to make a push in either direction. Mubarak’s resignation wasn’t enough to prompt a major sell-off, meaning worries persist, but the market also needs another catalyst to keep pushing higher.

One potential catalyst would be any disruption in oil supplies from the Middle East, he said. Another would be if a new totalitarian government in Egypt should be less friendly or even openly hostile toward Israel.

“There is plenty that could occur that causes gold to still soar,” Preston said. Technically, he said, a key for gold will be whether the April futures can break above the area around $1,375, around the 50-day moving average.

Daniel Pavilonis, market strategist with Lind-Waldock, suggested that some abatement of the Middle East worries might actually help clear the way for gold to tick higher again. During the flare-up, the U.S. dollar also surged on safe-haven buying, he related. And since gold often moves inversely to the greenback, this helped limit some of the upside in the metal.

“There are still some issues over there,” he said.

Meanwhile, Michael Gross, broker and futures analyst with OptionSellers.com, figures much of the flight-to-quality buying in gold may have already occurred, unless there are more flare-ups. In the meantime, the focus could return to the economy, with any improvement in equities leading to more willingness to move into traditional financial investments, in turn taking away some possible investment dollars that otherwise could go into gold.

Gross said, however, there likely will be days when there will be “fits and starts” where buying in gold returns on Mideast concerns, particularly if there is another flare-up.

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