Middle East tensions, rate cut bets drive gold price higher

Gold price rises amid Fed rate cut bets, safe-have demand from Middle East tensions

The price of gold saw an increase on Monday, rising for the third straight session on heightened safe-haven demand amid Middle East tensions and market speculations of an earlier-than-expected interest rate cut by the Federal Reserve.

As of 13:30 GMT, spot gold rose 0.2% to $2,053.00 per ounce, while U.S. gold futures gained 0.3% to $2,057.50. Trading activity on Monday is expected to be low due to the Martin Luther King Day holiday in the U.S.

The ongoing war between Israel and Hamas, which recently surprassed the 100-day mark, coupled with the Houthi militia's potential response to airstrikes in Yemen, has contributed to elevated risks. Gold, known for its appeal during economic turmoil, tends to act as a safe-haven asset that can offset risks in times of geopolitical uncertainty.

Having reached an all-time high of $2,135.40 on December 4, gold continued to be supported by data indicating an unexpected decline in U.S. producer prices in December, leading to lower 10-year Treasury bond yields.

Traders are currently pricing in an 81% chance of a Fed ineterest rate cut in March, according to CME's FedWatch tool. Higher interest rates typically increase the opportunity cost of investing in non-yielding assets like gold.

In the broader metal market, spot silver increased by 0.2% to $23.21 per ounce, platinum climbed 0.7% to $911.58, and palladium gained 0.4% to $979.57.

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Gold price forecast: TD Securities sees yellow metal at $2,200 in Q2 2024

With the price of gold sitting near its highest level in five days at above $2,050, analysts at TD Securities wrote of the yellow metal’s outlook:

“Strong labor markets are associated with continued inflation pressures. And with core CPI much above the two percent target, the market concluded that a very early Fed easing is not in the cards. But with the most recent production prices coming in below expectations, the market is once again going long, as it anticipates an early end to restrictive policy.

There will likely be data-driven volatility as gold trends to our $2,200 Q2 target”.

In a more technical gold price forecast, analysts at Paris-based Societe Generale wrote:

“Gold has evolved within a large sideways consolidation since 2020. It attempted a breakout from this range last month, however faced stiff resistance near $2,135. [A] recent breakout attempt too has petered out near $2,088.A sideways consolidation is taking shape.

Defence of the 50-DMA near $2,012 would be crucial for continuation in up move. It would be interesting to see if Gold can establish beyond recent lower peak at $2,088 to confirm clear breakout from multi-year range.

Failure to hold above $2,012 could denote risk of a deeper pullback”.

A gold price forecast overview by Markets.com in late 2023 shed light on several investment banks’ outlooks for the commodity. Institutions such as the Australia-based ANZ Bank and Japan’s MUFG appeared highly bullish on the yellow metal, forecasting it to potentially hit record highs in 2024 on the back of thee key factors: interest rate reductions, geopolitical risks, and central bank buying.

When considering gold and other commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss. Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.