Gold Increase - Tensions in Middle East, Turmoil in China's Markets

Gold bumped up in its price on Tuesday as the markets began to stabilize. This is amid the Middle east tensions that have been occurring and the concerns of China's growth with its stock market problem.

Gold futures finished the day up 0.3% at $1,078.40 a troy ounce on the Comex division of the New York Mercantile Exchange, adding to a 1.4% price gain the previous day.

Gold’s gains came amid volatility in global equity markets, with U.S. indexes swinging between positive and negative territory while Asian and European markets were mixed. China’s central bank sought to stabilize markets by injecting $20 billion in short-term funds into the country’s financial system.

Meanwhile, fallout from Saudi Arabia’s execution of a Shiite cleric and Iran’s reaction continued to engulf the Middle East, as Kuwait followed other Gulf states in announcing it would recall its ambassador from Tehran.

On Monday, a 7% drop in mainland Chinese stock markets triggered circuit breakers. On Tuesday, the Shanghai Composite stabilized, falling 0.3% after the Chinese central bank injected $19.9 billion in short-term funds to calm the market.

Analysts attributed Tuesday’s move to trading based on technical analysis, and said there was little fundamental reason to drive the move. In the bigger picture, few said it portended any substantive rally.

“The bulls must be disappointed, because gold has every excuse in the world to rally,” said Ted Sloup, a senior market strategist at Chicago brokerage iiTrader. “Everything is working in its favor for the bull camp, and it can’t get sustained momentum.”

Safe-haven buying is unlikely to provide more than a short-term boost amid a bearish picture for gold, said Carsten Menke, commodities research analyst at Julius Baer.

UBS said gold’s recent performance as a safe haven has disappointed the market. Last year, several market shocks, from steep stock market declines to civil war in Ukraine, did little to boost the price of the precious metal.

“Investors are understandably hesitant,” the bank said in an note.

Instead, investors are likely to refocus on the factors that pushed gold lower through 2015, such as rising U.S. interest rates and a stronger dollar.

Rising interest rates make the metal less competitive against such interest-bearing instruments as Treasurys, while a stronger dollar makes gold more expensive for investors who hold other currencies.

On Tuesday, the WSJ Dollar Index, which measures the dollar against a basket of other currencies, was up 0.4%.