Gold supported by geopolitical tensions

Gold prices steadied on Thursday, trading around $2,040 per ounce. If gold prices increase, further resistance may be encountered near $2,088 per ounce, while if gold prices decline, support may be encountered near $2,027 per ounce. 

Geopolitical tensions have been raising the appeal for safe-haven assets, boosting gold prices. The violence in Gaza is showing no signs of abating. Concerns that the Geopolitical crisis in the Gaza area may spread to neighboring countries are raising demand for safe-haven assets, propping up 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.

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 remained firm on Thursday, with the dollar index hovering close to the 102.5 level. US treasury yields continued to gain strength, with the US 10-year bond rising above 4.0%.    

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 70% probability.

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Written by:
Myrsini Giannouli

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