Gold jumped to new 3-month highs as London traders returned from the August Bank Holiday on Tuesday, rising above $1418 per ounce as world stock markets fell. Silver hit its best level since April at $24.50 per ounce.

Other commodities also rose, erasing the last of their summer drop alongside precious metals, whilst major government bonds ticked higher, edging interest rates back down from their recent two-year highs. 

“The price action remains bullish with higher highs and higher lows,” adds technical analysis of the gold chart from market-maker Scotia Mocatta.

“Gold,” says Eugen Weinberg at Commerzbank, “is clearly finding support from the geopolitical risks in the Middle East and North Africa, amongst other things.”

US secretary of state John Kerry yesterday called chemical attacks on civilians by Syrian government troops “a moral obscenity”, while weapons inspectors from the United Nations were shot at near Damascus.

US Treasury Secretary Jack Lew meantime said that the US government will have only $50 billion to spend by mid-October, and urged Congress to raise the “debt ceiling” to avoid running out of spending money. The threat of that crisis in 2011 saw the gold price surge to all-time highs above $1900.

“Such a scenario could undermine financial markets and result in significant disruptions to our economy,” Lew said Monday.

After Friday’s weak sales data for new US homes, yesterday’s surprise drop in Durable Goods Orders “[is] again raising expectations that the Federal Reserve may actually not move to trim its bond purchases until October at the earliest,” says one gold analyst.

Noting that precious metals are “the star performer” in the third quarter of 2013 so far, “Even as the threats of tapering and fund outflows are weighing down on gold,” says Deutsche Bank, “this is partially offset by expectations of opportunistic demand from India.”

But forecasting a drop to average $1250 in the fourth quarter, Morgan Stanley says “a strengthening US currency and rising US bond yields have already proved to be a major headwind to gold. “We expect this backdrop to be reflected in reduced investor net long positioning in the paper gold market and further reductions in the holding of physically backed gold ETFs.”

Speculators trading US gold futures and options last week cut their bearish bets and increased their bullish positions, new data showed late Friday. Rising to a 6-month high, the “net long” balance of bullish minus bearish bets rose to 320 tonnes equivalent, up by 25% from a week before.

Cash-price positions in exchange-traded gold trusts – favored by Western fund managers – also rose for a second week running, data from Bloomberg show, after sinking 25% in 2013 to four-year lows.

Emerging-market central banks raised their gold bullion positions again in July, new data from the International Monetary Fund showed this morning. Russia added 6.5 tonnes to confirm its position as the world’s 7th largest gold holder, breaking the 1,000-tonne mark for the first time. Turkish bank deposits added a further 22 tonnes to Ankara’s holdings, the 11th largest at 464 tonnes.

Intervening to try and defend the value of their currencies, however, cost emerging-market central banks some $81 billion of “emergency reserves” since May, according to analysis from Morgan Stanley, which excludes China.

“It would be desirable for advanced economies to implement a more predictable exit [from, quantitative easing],” said Mexico’s central-bank governor – and one-time IMF managing director candidate – Agustin Carstens at the weekend’s Jackson Hole symposium in Wyoming. “Better communication, speaking with one voice, is very important.”

Brazilian finance minister Guido Mantega said yesterday his country is suffering a “mini crisis” as a result of the US Federal Reserve communicating its aims “poorly”.

“The United States,” says China’s vice-finance minister Zhu Guangyao, “must consider the spill-over effect of its monetary policy, especially the opportunity and rhythm of its exit from the ultra-loose monetary policy.”

Adrian Ash, Guest Contributor to MiningFeeds.com

About the author: Adrian Ash is head of research at BullionVault.