Gold advances on safe haven appeal

Gold prices surged on Tuesday, rising above $2,045 per ounce. If gold prices increase, resistance may be encountered near $2,048 per ounce, while if gold prices decline, further support may be found near $2,015 per ounce. 

Demand for safe haven assets increased this week, 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. Concerns that the Geopolitical crisis in the Gaza area may spread to neighboring countries are raising the appeal of safe haven assets, propping up gold prices.  

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 dipped on Tuesday, with the dollar index dropping to the 102.2 level. US treasury yields also declined, with the US 10-year bond yielding approximately 3.93%.      

Increases in central banks’ interest rates put pressure on gold prices since assets yielding interest become a more appealing investment compared to gold as interest rates rise. Expectations that the Fed may start cutting interest rates from the first quarter of 2024 are propping up gold prices.

The Fed kept interest rates unchanged at its December meeting, within a target range of 5.25% to 5.50%. The Fed’s forward guidance was more dovish than expected, hinting that the central bank is preparing to pivot to a less restrictive monetary policy. Market expectations of future rate cuts are boosting gold prices, as markets are currently pricing in a 25 bp rate cut in March with over 60% probability.

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Written by:
Myrsini Giannouli

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