Gold remains in an uptrend on rising geopolitical tensions

Gold prices continued trading in an uptrend on Thursday, rising from $2,650 per ounce to $2,672 per ounce. 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. 

In addition, a slump in stock markets on Thursday turned safe-haven demand towards gold. Nvidia released its Q3 earnings on Thursday, which were underwhelming, causing its stock to plummet by 3.0% following the release, putting pressure on gold stock markets and driving investors to safe-haven assets.

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 this week, 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. Russia has deployed North Korean troops into Ukraine, which fuelled Biden’s decision to permit Ukraine to use the missiles. These long-range missiles can reach deep into Russian territory and Biden’s decision can cause the crisis in Ukraine to escalate further. Ukraine has already launched the first missiles into Russia, according to reports by Bloomberg. Tensions between Russia and Ukraine continued to rise, boosting gold prices, as Russia launched a ballistic missile against Ukraine, according to a report by Bloomberg.

Reports that Russian President Vladimir Putin updated Russia's nuclear doctrine boosted safe-haven demand on Tuesday, boosting gold prices. Dmitry Peskov, Press Secretary of the President of the Russian Federation, said on Tuesday that Russia might use nuclear weapons if it was subject to a conventional missile assault supported by a nuclear power. The Russian Government’s message came as a response to Biden’s approval of the use of US missiles by Ukraine against Russia. Peskov also threatened that Biden’s approval of the use of missiles by Ukraine could lead to a third world war. On Wednesday, however, Russian President Vladimir Putin stated that he would be open to negotiations for a ceasefire deal with Ukraine, brokered by US President-elect Donald Trump, according to a report by Reuters.

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 gained strength on Thursday and the dollar index rose from 106.6 to 106.9. US treasury yields also gained strength, providing support for the dollar, with the US 10-year bond yield rising from 4.41% to 4.43%. Gold prices extended gain this week, however, as increased safe-haven demand outweighed the dollar’s rally.

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 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. 

Rate cut expectations have been fluctuating in the past couple of weeks due to ambiguous Fedspeak. FOMC members seem to be divided on the rate cut outlook, with some policymakers delivering hawkish speeches, while others are adopting a more dovish stance. Market odds of future rate cuts are reflecting this divergence in policymakers’ opinions, with odds of a December rate cut hovering just above 55%. 

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Written by:
Myrsini Giannouli

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