18 Nov 2024

Gold prices are experiencing an influx of safe-haven investments on Monday due to increasing geopolitical tensions.

The US dollar continues to be under pressure, remaining below a one-year peak, which also provides some support.

However, expectations for less aggressive interest rate cuts by the Federal Reserve, along with high US bond yields, are likely to limit any significant increases in gold prices.

Gold prices (XAU/USD) are experiencing a notable increase on Monday, partially recovering from last week's significant drop to their lowest point since September 12. Currently, the commodity appears to have ended a six-day losing streak, supported by a resurgence in safe-haven demand amid concerns over potential geopolitical tensions. Additionally, the relatively weak performance of the US Dollar (USD) is contributing to the support for this precious metal.

However, the potential for further gains in Gold prices seems constrained by expectations that the policies of US President-elect Donald Trump may reignite inflationary pressures and restrict the Federal Reserve's ability to implement additional rate cuts. This expectation has been a significant driver behind the recent rise in US Treasury bond yields, which is likely to continue providing support for the US Dollar and limit any substantial increase in the non-yielding Gold prices.

Gold prices are influenced by geopolitical tensions; however, bullish sentiment appears hesitant in light of a less accommodative Federal Reserve.

Last week, gold experienced its most significant weekly drop since September 2023, reaching a level not seen in over two months, primarily due to a robust rally in the US Dollar, which surged to a one-year high.

Recent geopolitical events over the weekend prompted a shift towards safe-haven assets, allowing gold to gain considerable momentum during the Asian trading session at the beginning of the week.

US President Joe Biden has permitted Ukraine to utilize US-provided long-range missiles for deeper strikes within Russian territory, which has recently reinforced its military presence with North Korean troops.

In a separate incident, a Russian assault on a nine-story building in the northern city of Sumy resulted in at least eight fatalities, while a large-scale drone and missile offensive targeted energy infrastructure.

In the Gaza Strip, Israeli forces reportedly killed at least 111 Palestinians on Saturday and have continued military actions in Lebanon following the assassination of Hezbollah’s senior media relations officer, Mohammad Afif.

Market participants now appear to believe that President-elect Donald Trump's proposed tariffs and tax cuts funded by debt could lead to inflationary pressures, potentially hindering the Federal Reserve's plans for rate reductions.

During a statement last Thursday, Fed Chair Jerome Powell indicated that there is no urgency to lower interest rates, citing a resilient economy, a strong labor market, and inflation remaining above the 2% target.

Boston Fed President Susan Collins mentioned in an interview that a rate cut in December is a possibility, but it is not guaranteed, and there is no predetermined course for monetary policy.

Additionally, Chicago Fed President Austan Goolsbee remarked that as long as progress is made towards the 2% inflation target, interest rates will remain significantly lower than current levels.

The yield on the benchmark 10-year US government bond remains stable near a multi-month high, which supports the US Dollar bulls and may limit the potential gains for the non-yielding gold.