Geopolitical Tensions Drive Gold Prices Higher
Gold prices surged on Thursday as escalating tensions in the Middle East increased the precious metal’s safe-haven appeal, offsetting the impact of higher U.S. interest rates.
Spot gold rose by 0.6% to $2,374.97 per ounce, following its record high of $2,431.29 last week. U.S. gold futures also inched up by 0.1% to $2,389.70.
According to Kelvin Wong, a senior market analyst for Asia Pacific at OANDA, the ongoing uncertainty in the geopolitical landscape is a key factor driving the upward trend in gold prices.
Amid the tensions, Israeli Prime Minister Benjamin Netanyahu emphasized his country’s right to defend itself, while Western nations urged caution in responding to Iran’s recent attacks.
Impact of Higher U.S. Interest Rates
Despite the geopolitical risks driving gold prices higher, the prospect of sustained high U.S. interest rates is exerting pressure on the precious metal.
Wong noted that while the current uncertainties may support gold in the short term, the expectation of a consolidation period and potential pullback is looming due to the impact of higher interest rates, which diminish the appeal of non-yielding assets like gold.
Fed Chair Jerome Powell’s recent comments hinting at the likelihood of prolonged high interest rates have reinforced this sentiment among investors.
Market Outlook: Futures Pricing and ECB Commentary
Traders are adjusting their expectations for rate cuts, with futures contracts now pricing in less than 50 basis points of cuts for 2024 and anticipating the first quarter-point cut to come in September.
Furthermore, comments from European Central Bank policymaker Mario Centeno suggest that even with potential rate cuts, the monetary policy stance will remain tight.
Performance of Other Precious Metals
Spot silver saw a 0.6% increase to $28.38 per ounce, platinum remained stable at $938.40, and palladium rose by 0.2% to $1,027.82.
The rise in silver and palladium prices indicates a broader trend of increased demand for precious metals amid geopolitical uncertainties and inflation concerns.
(Reporting by Sherin Elizabeth Varghese in Bengaluru; Additional reporting by Harshit Verma; Editing by Sherry Jacob-Phillips)
