Gold rally halted as markets reassess geopolitical risks

Gold prices have been hitting new all-time highs in the past weeks and touched a record high of $2,431 per ounce last week. Gold prices eased on Wednesday, however, dropping to $2,360 per ounce. If gold prices increase, resistance may be encountered at $2,431 per ounce, while if gold prices decline, support may be encountered near $2,300 per ounce. 

Gold prices have experienced a meteoric rise recently and are trading in overbought territory. Geopolitical tensions raise the appeal of safe-haven assets boosting gold prices. Concerns that the crisis in the Gaza area may spread to neighboring countries are raising demand for safe-haven assets keeping gold prices high. Tensions in the Middle East have been high after the recent airstrike on Iran’s embassy in Syria. Iran accused Israel of the attack and launched a retaliative drone strike on Israeli ground over the weekend. Israel has, in turn, threatened Iran with retaliation for the drone attack, and the Israeli war cabinet has met to discuss the terms of Israel’s response against Iran. The US has pledged to support Israel in the conflict, raising concerns of a wider regional conflict. 

On Wednesday, however, gold prices dropped as markets reassessed geopolitical risks. Israel seems to be pondering its response against Iran carefully, and retaliation does not appear to be imminent, reducing the appeal of safe-haven assets.

Gold prices have been typically directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar dipped on Wednesday with the index retreating below the 106 level. US treasury yields dropped, with the US 10-year bond yielding approximately 4.59%. 

The US Federal Reserve kept interest rates unchanged at its latest policy meeting within a target range of 5.25% to 5.50%. Fed rate cut expectations are affecting gold prices. Rate cut expectations have shifted repeatedly in the past few months and after last week's inflation data markets are not anticipating a rate cut before July. More importantly, a few months ago markets were pricing in over 100 basis points of rate cuts in 2024 markets, which have now dropped to 50 basis points. Market expectations of rate cuts are becoming more moderate as policymakers have stated that they intend to start reducing interest rates slowly.

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Written by:
Myrsini Giannouli

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