Gold Rises Amid Softer Dollar And Rising Geopolitical Tensions
The comments below are an edited and abridged synopsis of an article by Reuters
Gold climbed for the third straight session on Wednesday, reaching a one-week high, as a softer US dollar and escalating Russia-Ukraine tensions drove investors toward safe-haven assets.
Spot gold increased by 0.32% to $2,640.19 per ounce as of 03:23 GMT last week, marking its highest level since November 11. Meanwhile, US gold futures advanced by 0.5% to $2,643.70.
The Dollar’s Weakness Boosts Gold
The US dollar, which hit a one-year high last week, has paused its rally, making gold more attractive for investors using other currencies. This relationship is a significant driver of gold’s recent strength, as bullion typically benefits when the dollar softens.
Heightened Geopolitical Risks
Geopolitical developments, particularly in Eastern Europe, have also contributed to gold’s rise. Russian President Vladimir Putin recently expanded the scenarios under which a nuclear strike could be initiated, following reports that the United States authorized Ukraine to deploy US-made weapons for deep strikes within Russian territory.
Ilya Spivak, Head of Global Macro at Tastylive, remarked, “The US authorization and Russia’s response, which could involve tactical nuclear weapons, are adding to market uncertainty. This has bolstered demand for safe-haven assets like gold. On the upside, the key resistance level to watch is $2,700.”
Focus on Federal Reserve Policy
The market was also closely monitoring comments from Federal Reserve officials last week for hints about the trajectory of US interest rate cuts. Currently, traders estimate a 58.9% probability of a 25-basis-point cut in December. However, stronger-than-expected economic data and President-elect Donald Trump’s proposed tariffs suggest that rates may remain elevated for longer.
While lower rates typically enhance the appeal of gold, which does not offer interest, persistent inflation concerns could complicate the picture. Spivak added, “The market is recalibrating its expectations for the Fed’s rate cuts next year. Rising inflation pressures could weigh negatively on gold, offsetting the benefits of potential rate reductions.”
Jeffrey Schmid, President of the Kansas City Federal Reserve, noted that while initial rate cuts reflect confidence in inflation returning to the 2% target, uncertainty remains about the extent of future reductions.
Broader Precious Metals Market Trends
In the broader precious metals market, spot silver held steady at $31.22 per ounce, while platinum edged higher by 0.1% to $975.10. Palladium remained flat at $1,035.43 per ounce.
Outlook for Gold
With the dual impact of geopolitical tensions and evolving monetary policy dynamics, gold continues to attract investor interest. A weaker dollar and heightened uncertainty in global markets provide a favourable backdrop for further gains, though inflation and higher interest rates remain potential headwinds.
Investors will keep a close eye on developments in the Russia-Ukraine conflict and signals from the Federal Reserve, as these factors will play a crucial role in shaping gold’s trajectory in the coming months.
