Gold Futures Achieve Record High Amidst Escalating Tensions: The
Driving Forces Unveiled
Gold
futures reached an unprecedented high on Friday, marking a potential milestone
known as the "golden cross," suggesting the likelihood of further
gains in the precious metal. The surge in gold prices was fueled by escalating
tensions in the Middle East, prompting market participants to seek refuge in
the safe-haven asset.
Bas
Kooijman, CEO and asset manager of DHF Capital, explained that the end of the
truce in the Middle East could perpetuate risk aversion and investors'
concerns, driving the upward momentum of gold prices. The heightened
geopolitical uncertainties have contributed to an extended uptrend in gold over
the last two months, as traders factor in evolving expectations regarding
monetary policy.
Traders
have been speculating on the possibility of an end to the interest rate hiking
cycle and potential rate cuts in the first half of the following year. This
anticipation of a shift in monetary policy has bolstered gold's rise over the
medium term.
On
Friday, gold for February delivery settled at $2,089.70 an ounce on Comex,
climbing by $32.50 or 1.6%. This surpassed the previous record-high finish of
$2,069.40 on August 6, 2020, according to Dow Jones Market Data. Intraday
prices also reached a new high of $2,095.70, exceeding the previous record from
August 7, 2020.
The rally
in gold commenced after the release of the October consumer-price index,
indicating that the U.S. cost of living remained unchanged. Edmund Moy, senior
IRA strategist for U.S. Money Reserve, suggested that the market interpreted
this data as a sign that the Federal Reserve may halt rate hikes and
potentially reduce rates sooner than expected.
Lower Fed
rates translate to lower Treasury yields, leading to a decline in demand for
Treasurys and subsequently a reduced demand for the dollar. This dynamic can
boost the price of dollar-denominated gold.
Brien
Lundin, editor of Gold Newsletter, noted that both the golden cross and the
proximity to an all-time high are acting as magnets for gold prices, implying
further gains in the immediate term. The proximity to a golden cross, where the
short-term moving average surpasses the long-term moving average, is considered
a bullish indicator.
Peter
Spina, president of GoldSeek.com, emphasized that gold prices hitting record
highs in various currencies, coupled with the U.S. dollar's decline, is likely
to attract additional buying momentum. He anticipates significantly higher gold
prices in the months ahead.
Despite
Federal Reserve Chairman Jerome Powell signaling that it's premature to claim
victory over inflation, gold remains supported by interest-rate cut
expectations. Lukman Otunuga, manager of market analysis at FXTM, suggested
that key data, including CPI and jobs data, will influence the Fed's ability to
cut interest rates in March.
However, caution is advised by both Otunuga and Lundin. Otunuga highlighted the potential for a technical throwback in gold due to overbought conditions, while Lundin warned that the all-time high may represent a "quadruple top" unless gold decisively breaks through a new plateau, likely above $2,100 an ounce.
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