Last week, the price of gold held steady with increasing geopolitical risks continuing to prop its prices up. This is despite the fact that the Fed also signaled a potential delay in a reduction in rates of interest.
U.S. gold futures dropped by 0.2% to reach $2,402.50 an ounce in New York while the price of spot gold rose by 0.1% to hit $2,387.12 an ounce. Spot gold’s price is roughly $50 short of its all-time high of $2,400.59 per ounce, which was recorded the previous week.
As of two weeks ago, three-month gold futures in the United States were trading at $2,413.30 an ounce in New York. The surge was observed after reports came in that Israel was prepping for an attack from Iran. This comes after Israel assaulted Iran’s diplomatic compound in Syria.
Jerome Powell, chair of the Federal Reserve, stated during the latest guidance that monetary policy needed to be restrictive for longer. These comments caused the dollar as well as treasury yields to jump, in addition to prompting another collapse in market-implied expectations for rate cuts by the Federal Reserve in 2024. Traditionally, this would have had a negative effect on nonyielding gold. Surprisingly, the precious metal remains on an uptrend.
Lukman Otunuga, a senior research analyst at FXTM, stated that gold was significantly overbought from a technical perspective. He explained that bulls were drawing strength from uncertainty in different markets with geopolitics outshining monetary policy and data expectations.
Since October last year, bullion has gained more than $500 after the conflict in the Middle East began. Thus far into the year, the precious metal has gained almost 16%. Otunuga also suggested in a note that while gold wasn’t correlated with treasury yields and the U.S. dollar in the present trend, it could still demonstrate short-term responses to movements in both. Growing demand from consumers in China and strong buying by central banks is also providing robust support for the precious metal’s rally.
Gold’s recent performance also saw Goldman Sachs increase its price outlook to $2,700 per ounce. The investment bank noted that the latest inflation data from the U.S. showcased the precious metal’s stability, adding that the bull market wasn’t being driven by the expected macro factors.
Goldman explained that traditionally, the precious metal’s fair value would connect to growth expectations, real rates and the dollar. However, none of these factors could explain the scale and velocity of the move recorded in the price of gold this year. This current market movement is undoubtedly acting as a tailwind for gold extraction companies such as Freeport-McMoRan Inc. (NYSE: FCX), and they could see their earnings rise during this period.
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