Gold prices plummet as safe-haven demand wanes

Gold prices plummeted from $2,750 to $2,660 per ounce on Wednesday as the US dollar and treasury yields surged. If gold prices rise, they may encounter resistance at $2,790 per ounce, while if gold prices decline, support may be encountered near $2,640 per ounce. 

Uncertainty over the US presidential elections boosted gold prices earlier in the week. Gold prices plummeted on Wednesday, however, after the announcement of Donald Trump’s victory in the elections. 

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 surged after the announcement of Donald Trump’s victory in the US Presidential elections. The dollar index skyrocketed from 103.5 to 105.4. US treasury yields also strengthened, with the US 10-year bond yield rising from 4.29 to 4.43%.

Gold prices continue to rise on expectations of further Fed rate cuts. The US Federal Reserve pivoted to a more dovish policy last week, performing a sharp rate cut of 50 basis points. The Federal Reserve decided to end its restrictive monetary policy in September, bringing its interest rate down to a target range of 4.75% to 5.00%. 

The US Federal Reserve will announce its interest rate decision on November 7th and is expected to lower interest rates by 25 basis points this week. Market participants will focus on Fed Chair Jerome Powell’s press conference after the meeting for hints on the Fed’s rate outlook.

Geopolitical tensions raise the appeal of safe-haven assets propping up gold prices. Gold prices hit a new all-time high of $2,789 per ounce on Wednesday. Gold prices had been trading in overbought territory, however, and tumbled on Thursday as traders started realizing their gains. 

The crisis in the Middle East is boosting demand for safe-haven assets, keeping gold prices high. In the past few weeks, markets had been bracing for Israel’s retaliatory attack against Iran, keeping gold prices up. Israel’s attack over the weekend, however, did not inflict substantial damage and was seen as a token retaliatory attack. The Iranian government announced that there would be an appropriate response to Israel’s attack, but Iran’s President emphasized that they do not seek a war with Israel. Signs that the crisis between Israel and Iran is de-escalating put pressure on gold prices towards the end of last week. On Saturday, however, Iran’s Supreme Leader Ayatollah Ali Khamenei threatened Israel with a crushing response.

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Written by:
Myrsini Giannouli

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