Gold prices are expected to increase slightly by 0.3% today, remaining above $2,610 per ounce in spot trading in an effort to stop a week-long losing streak. The rise in gold prices is attributed to the high level of geopolitical tension in the Middle East, with the possibility of further escalation looming. However, there is also pressure on gold to give up some of its gains due to the increasing trend in Treasury yields.
The anticipation of Israel’s response to last week’s Iranian attack is causing uncertainty in the markets. The Israeli defense minister’s statement about a strong and surprising attack, as well as the security cabinet’s plan to vote on the attack today, indicates a potential escalation of the regional conflict. The phone call between US President Joe Biden and Israeli Prime Minister Benjamin Netanyahu focused on diplomatic efforts to resolve the conflict, although the details of the call were not disclosed.
On the economic front, the minutes of the Federal Open Market Committee meeting provided mixed signals for the markets. While there is support for the recent rate cut, policymakers are cautious about further large cuts in the future. This caution aligns with Jerome Powell’s warning about additional rate cuts, especially considering the recent labor market reports exceeding expectations.
The rally in Treasury yields, with the 10-year yield reaching its highest level since late July, is supporting the US dollar as a safe haven currency amid the escalating conflict in the Middle East. The markets are also waiting for the September reading of the US Consumer Price Index, which could impact future interest rate decisions. If inflation does not slow down as expected or accelerates, it could put pressure on gold prices to give up their gains.
Looking ahead, the possibility of two quarter-point rate cuts in the upcoming November and December meetings could affect the price of gold. However, renewed inflation risks, particularly if energy prices surge due to a large-scale conflict escalation, may lead central banks to slow down rate cuts. These developments could have opposing effects on gold prices, explaining the mixed responses in the market.
Overall, the future direction of gold prices will depend on a combination of factors, including geopolitical tensions, interest rate decisions, and inflation rates. Investors should closely monitor these developments to make informed decisions in the volatile market environment.
