Gold rallies on rising tensions in Ukraine

Gold prices rose from $2,560 per ounce to $2,610 per ounce on Monday on increased safe-haven demand. If gold prices rise, they may encounter resistance at $2,700 per ounce, while if gold prices decline, support may be encountered near $2,540 per ounce. 

Gold prices skyrocketed to an all-time high of $2,700 per ounce earlier this month, but had been moving in overbought territory, and collapsed after the announcement of Donald Trump’s victory in the US Presidential elections. 

The implications of the Republicans’ victory are putting pressure on gold prices, which have registered a steep decline so far in November. Trump’s proposed tariffs and tax policies are expected to support economic growth, boosting the dollar and putting pressure on gold prices. The effects of Trump’s victory on markets are starting to fade this week, however, and gold prices are starting to rally. 

Geopolitical tensions raise the appeal of safe-haven assets propping up gold prices. The crisis in the Middle East had been boosting demand for safe-haven assets, keeping gold prices high. The conflict in the Middle East, however, has been raging for over a year and markets are starting to ignore this risk, lowering the appeal of safe-haven assets. 

Reports that Trump has urged Russian President Vladimir Putin to deescalate tensions in Ukraine put pressure on gold prices last week. Gold prices rallied on Monday, however, as tensions between Russia and Ukraine flared over the weekend. Safe-haven demand rose after US President Joe Biden green-lighted Ukraine’s use of US-bought missiles against Russia. These long-range missiles can reach deep into Russian territory and Biden’s decision can cause the crisis in Ukraine to escalate further. Meanwhile, Russia has deployed North Korean troops into Ukraine, which fuelled Biden’s decision to permit Ukraine to use the missiles. 

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 last week, and the index rose to 107.0, its highest value since October 2022. However, the dollar dipped on Monday, and the dollar index dropped to 106.2. US treasury yields also edged lower, with the US 10-year bond yield falling from 4.46% to 4.42%.

The US Federal Reserve cut interest rates by 25 basis points last week to a target range of 4.50% to 4.75%. The Fed had already launched its easing cycle in September, with an aggressive 50-bp rate cut, signaling the end of its restrictive monetary policy. Gold prices are supported by expectations of further Fed rate cuts. Odds of another rate cut in December dropped to 60% this week from 90% the week before, putting pressure on gold prices.

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Written by:
Myrsini Giannouli

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