Following the fall of Malaysian Airline MH17 near Donetsk, Ukraine, gold prices attained its biggest gain in a month. On July 18, Gold reached 1,322.80. However, since the beginning of this week, the precious metal has slightly weakened, and now traded around 1,308.80. The impact of geopolitical tensions apparently has diminished; or is it?

Following the fall of Malaysian Airline MH17 near Donetsk, Ukraine, gold prices attained its biggest gain in a month. On July 18, Gold reached 1,322.80. The incident has fanned tensions in the region, with more than half of the passenger's aboard is of European origin. In addition, Israel ground invasion in Gaza and the rising Palestinian casualties drove up risk aversion sentiment in the market. However, since the beginning of this week, the precious metal has slightly weakened, and now traded around 1,308.80. The impact of geopolitical tensions apparently has diminished; or is it?


gazaA side by side map of Gaza (left) and MH17 crash site in Ukraine (right)

Safe Haven Demands

Gold physical demands have subdued since Gold prices fluctuates last month due to escalated geopolitical tensions. Therefore, Gold price upward movement is basically footless, as the need for gold is driven by the need for safe haven asset.

Forbes Kitconews quoted analyst from UBS, Both the Ukraine and Iraqi crises have encouraged gold buying this year, but the impact has been inconsistent and moderate. In essence, this factor has not been a major contributor of gold upside; rallies this year based on a safe-haven bid have consistently proven to be nothing but a temporary, safe-driven rally.

In other word, geopolitical tensions will likely keep Gold to try to move higher, but the sentiment is not likely to be sustained in a longer term, unless another explosive event happen. Latest CNBC sentiment survey report stated that risks of conflicts escalation support gold prices to stay above 1,300, but downside risks remain pervasive and gold bears warned bullion may suffer this week if US economic data -which include consumer prices, durable goods, and existing home sales- prints on the higher side of the range.

Fed Rate Hike

The factor that keeps burdening Gold prices is US The Fed Tapering which will end by October. Consequently, scheduled data release from the US put the risk on Gold as the market is quite heavy on speculation about when the Fed will hike rate. Therefore, any gold price movement on the upside will likely be limited.

Lv Jie from Cinda Futures Co. said to Bloomberg yesterday (22/7), While gold may get some support from unrest around the world, the longer term downtrend is intact because of the expectations for higher US interest rates. Improving US economic data is positive for the dollar which in turn weighs on gold.

Similarly, Naeem Aslam from Ava Trade said to CNBC, Any improvement in the U.S. economic data is going to continue the punishment for gold. The main support is near 1,270 and resistance at 1,340.

Mixed Technicals

Technical analysis for Gold commodity prices also remain on mixed area with stronger pressure on sell, as shown on the picture below.


Gold

Gold Commodity Prices Technical Analysis 23 July 2014 Based on Monthly Data via Investing.com

Gold prices in the following month is most likely will stay around the established range of 1,270-1,340. Isolated incidents in Ukraine, Gaza, or other conflict area will spur demands for the safe haven asset, while US economic data improvements shall intervene to keep it on the low.