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Gold prices jump as Middle East worries offset rate cut bets

Gold gains

Spot gold was 0.8% higher at $2,379.21 per ounce after reaching an all-time high of $2,431.29 last Friday

Gold prices climbed on Thursday, as risks of a widening conflict in the Middle East raised bullion’s safe-haven appeal, overshadowing pressures from prospects of higher-for-longer U.S. interest rates.

Spot gold was 0.8% higher at $2,379.21 per ounce, as of 0713 GMT, after reaching an all-time high of $2,431.29 last Friday. U.S. gold futures rose 0.2% to $2,394.10.

Given the fact that we do have a lot of uncertainty on the geopolitical front, which is supporting this upward trend that is still prevalent in gold, according to Kelvin Wong, a senior market analyst for Asia Pacific at OANDA.

Although “U.S. interest rates remaining higher for a longer may be adding some pressure to the ongoing boost for gold. In the short term, we will start to see a bit of consolidation and a potential pullback,” Wong added.

Higher interest rates lower the appeal of holding non-yielding bullion.

Federal Reserve officials are now being more careful about discussing the timing of rate cuts, with Fed Chair Jerome Powell on Tuesday hinting rates may stay higher for longer.

Traders of futures contracts tied to the Federal Reserve’s policy rate are now pricing in less than 50 basis points (bps) of rate reductions for 2024, while betting on the first quarter point reduction to arrive in September.

Disinvestment in gold-backed exchange traded funds (ETFs) has been continuing. A lean level of investment in gold should be seen as a potential driver, as it limits scope for a heavy liquidation and indicates there is huge potential for fresh buying, analysts at ANZ Research stated in a note.

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