Gold dips despite rising geopolitical tensions

Gold prices dipped on Monday, dropping to $2,020 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 $2,015 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. US Secretary of State Antony Blinken is due to visit the Middle East to prevent the war from spreading in the region. Reports that Chinese shipping company Cosco has suspended shipping via the Red Sea propped up gold prices, following the announcement of Danish shipping company Maersk that it would not be using Red Sea shipping routes for the foreseeable future.

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 weakened on Monday, with the dollar index steadying near the 102.3 level. US treasury yields remained firm, with the US 10-year bond yielding approximately 4.03%.      

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 60% probability.

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Written by:
Myrsini Giannouli

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