Gold prices are at all-time high

Gold prices broke through the 2,150 per ounce resistance level on Thursday, going above 2,160 per ounce for the first time. If gold prices increase, further resistance may be encountered at the psychological level of $2,200 per ounce, while if gold prices decline, support may be encountered near $2,025 per ounce. 

Gold prices have experienced a meteoric rise since last week and are currently trading in overbought territory. The dollar’s decline, combined with the rise in demand for safe-haven assets due to the war in Gaza, has propelled gold prices upward. 

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.

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 continued to decline on Thursday, with the dollar index dropping below 102.8. US treasury yields also declined, with the US 10-year bond yielding approximately 4.09%.    

US fundamentals have also influenced gold prices. Last week’s data revealed that the US economy is not as robust as previously anticipated. Rising concerns about the health of the US economy weighed down the dollar and propelled the safe-haven gold upwards. 

The Fed kept interest rates unchanged at its latest monetary policy meeting within a target range of 5.25% to 5.50%. The Fed, however, has removed the tightening bias from its policy statement, indicating that the central bank is preparing to pivot to a less restrictive monetary policy, boosting gold prices.

Fed Chair Jerome Powell delivered his Semi-annual Monetary Policy Report to the US Congress and the House Financial Services Committee on Wednesday. Powell’s address to the Senate was on the hawkish side, reiterating that the central bank is not ready to start reducing interest rates. Powell’s testimony, however, did not hold any surprises, and rate cut expectations have already been dialed back considerably and the dollar dipped further after Powell’s speech.

Powell continued his testimony on Thursday, in a question-and-answer session before the US Senate Banking Committee. Powell's speech on Thursday was more dovish, putting pressure on the dollar. Powell stated that the US central bank is not far from acquiring confidence that inflation will continue to drop sustainably, which is required to start reducing interest rates. Powell also stated categorically that rate cuts will begin this year, removing doubts that the recent uptick in inflation will cause interest rates to remain at high levels throughout the year. Powell’s speech drove the dollar to its lowest level since the start of the year and put pressure on US treasury yields.

Rate cut expectations have been fluctuating strongly, affecting gold prices. Odds of a rate cut in March are practically nil. Rate cut odds in May are also down to 20% and only 25 basis points of rate cuts are priced in by May, against 25-50 bp before. Market expectations of rate cuts are becoming more moderate as policymakers have stated that they intend to start reducing interest rates slowly.

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Written by:
Myrsini Giannouli

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