Geopolitical risks propel gold prices to new highs

Gold prices touched yet another all-time high of 2,295 per ounce on Wednesday and are on track for $2,300 per ounce as gold’s bullish trend continues. If gold prices increase, resistance may be encountered at $2,300 per ounce, while if gold prices decline, support may be encountered near $2,145 per ounce. 

Gold prices are propped up by rising geopolitical tensions, which raise the appeal of haven assets. Tensions in the Middle East are rising after an airstrike on Iran’s embassy in Syria on Monday. Iran and Syria have accused Israel of the attack and Iran is threatening Israel with retaliation. Concerns that the Geopolitical crisis in the Gaza area may spread to neighboring countries are raising demand for safe-haven assets, boosting gold prices. The war between Israel and Hamas is threatening to spill over the Middle East as tensions rise in the Red Sea area. The ongoing conflict between Russia and Ukraine is also propping up gold prices. Ukrainian drones have recently attacked one of Russia’s largest oil refineries, reportedly causing the loss of Russian refinery capacity.

Gold prices have experienced a meteoric rise recently and are trading in overbought territory. Gold prices have been benefiting from increased geopolitical risks, as well as from the rivaling dollar’s weakness. Gold prices have been predominantly directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar continued to decline on Wednesday, with the dollar index dropping below the 104.3 level. US treasury yields remained firm, with the US 10-year bond yielding approximately 4.36%.    

The US Federal Reserve kept interest rates unchanged at its latest policy meeting within a target range of 5.25% to 5.50%. The Fed’s forward guidance was overall dovish, boosting gold prices. For months now, markets have been speculating as to the timeline of the Fed’s pivot to a more dovish policy. Fed officials wish to see more evidence of disinflation before moving ahead with cutting interest rates. 

Fed rate cut expectations are affecting gold prices. Odds of a rate cut in May are practically nil. Rate cut odds in June are approximately 60% and only 25 basis points of rate cuts are priced in by June. 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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