Safe haven demand boosts gold prices

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 continued to defy the rivaling dollar’s rally on Monday, surging to $2,390 per ounce. If gold prices increase, resistance may be encountered at the psychological level of $2,500 per ounce, while if gold prices decline, support may be encountered near $2,270 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. 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. The US has pledged to support Israel in the conflict, raising concerns of a wider regional conflict. 

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 continued to gain strength on Monday and the dollar index rose above the 106.2 level. US treasury yields also rose on diminishing Fed rate cut expectations, with the US 10-year bond yielding approximately 4.64%. Gold prices remain at record highs, however, propped up by a strong safety bid, which counterbalances the dollar’s rally.    

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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