Gold prices supported by safe-haven demand

Gold prices remained steady on Thursday, trading around the $2,020 per ounce level. If gold prices increase, resistance may be encountered near $2,040 per ounce, while if gold prices decline, support may be encountered near $2,000 per ounce. 

Gold prices are propped up by rising geopolitical tensions, which raise the appeal of safe-haven assets. 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. 

Attacks on ships in the Red Sea area by Yemen's Iran-backed Houthi militia increase concerns that the crisis will widen to other areas in the region. The US and the UK have launched a coordinated action against Houthi rebels in Yemen. The coalition delivered new airstrikes against Houthi rebels in Yemen overnight on Monday. Houthi troops retaliated on Wednesday, launching new attacks on ships off Yemen's coast, increasing concerns for the oil transportation routes in the area.

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 rallied on Thursday on strong US economic data, with the dollar index climbing above the 103.5 level. US treasury yields remained steady on Thursday, with the US 10-year bond yielding approximately 4.11%.              

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 fluctuate strongly, affecting gold prices. 

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Written by:
Myrsini Giannouli

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