Gold Hits $2,450 on Fed Easing Hopes, Middle East Tensions

Quick Look:

Gold has once again captured the spotlight. It surges to an all-time high and reflects the intricate interplay between economic policies and global geopolitical uncertainties. The precious metal’s ascent is fuelled by growing optimism that the Federal Reserve will start easing monetary policy this year, alongside rising tensions in the Middle East.

Gold Hits $2,450.07 as Fed Rate Cut Hopes Rise

On Monday, bullion prices jumped as much as 1.4%, reaching an unprecedented $2,450.07 an ounce during Asian trading hours. This surge surpassed the previous intraday record set in April, underscoring the strong momentum behind gold’s rally. Traders have increasingly bet that the Federal Reserve might reduce borrowing costs as early as September. This expectation is significant for price, as lower interest rates enhance the metal’s appeal by reducing the opportunity cost of holding it, given that gold does not pay interest.

Last week, supportive economic data further bolstered metal prices. The US dollar weakened, and Treasury yields fell after April inflation data released on Wednesday showed a more significant-than-expected easing.

Iran Incident, Houthi Attack Propel Gold’s Safe-Haven Demand

Gold’s haven status was prominently highlighted on Monday following a series of concerning events in the Middle East. On Sunday, a helicopter carrying Iranian President Raisi crashed in dense fog, adding to the region’s geopolitical uncertainties. This incident followed a missile attack on a China-bound oil tanker by Houthi forces in the Red Sea on Saturday, further escalating tensions.

Nicholas Frappell, global head of institutional markets at ABC Refinery in Sydney, remarked on gold’s recent movements, stating, “Gold’s rally is news-driven with uncertainty about what happened in Iran.” He noted the speculative nature of the market’s reaction, adding, “There is bound to an element of jumping to conclusions on the basis of very little information.” Frappell also pointed out that the lower levels of liquidity in Asia make investors reluctant to reduce their positions, which has contributed to the sustained rally.

Market Dynamics and Broader Implications

Hedge funds’ trading activities have also influenced the market dynamics around gold. According to the latest data from the Commodity Futures Trading Commission, hedge funds trading Comex futures increased their bullish bets on gold to a three-week high in the week ending May 14. This indicates strong investor confidence in gold’s upward trajectory.

The broader market trends suggest that gold has successfully broken out of a relatively narrow trading range that persisted in recent weeks. It received a boost from uncertainty over the US interest rate path. With prices now up almost 20% this year, the metal has demonstrated resilience and strength amid varying economic conditions. The recent rally has seen metal hit successive records throughout April, reflecting robust demand.

Central bank purchases, strong demand from Asian markets, particularly China, and elevated geopolitical tensions. Spot gold rose 1.4% to $2,449.27 an ounce in Singapore, signalling ongoing investor interest.

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