Gold achieved a second weekly gain, closing last Friday just under $2,000 per ounce as situations in the Middle East continued to deteriorate. Prices for the yellow precious metal hit an impressive three-month peak on Friday as tensions in the Middle East spiked safe-haven demand and speculations over Federal Reserve interest rate hikes settled following the latest member statements and data releases.
Spot gold achieved its highest performance since July 20, hitting $1,973.99 per ounce. Gold futures reached $1,994.40 per ounce on Friday, just under key $2,000-per-ounce lines. With this momentum, we could see the precious metal trading above $2,000 per ounce soon.
Gold’s most recent momentum began after the Hamas attack on Israel on Saturday, October 7. The conflict sparked increased safe-haven demand as investors flocked to secure their assets in the event of the worst-case scenario. As the tensions have only worsened, gold has only gained.
On Thursday, Yoav Gallant, the Israeli Defence Minister, told Gaza border troops that they would see the Palestinian enclave “from inside” soon, meaning Israel would likely be conducting a ground raid in the near future to take down Hamas. Of course, this statement simply means further conflict in the grand scheme of things, pushing gold prices up within a mere 24 hours of the statement’s release.
“You see Gaza now from a distance, you will soon see it from inside. The command will come,” Gallant stated.
“All the indications are that the worst is coming,” Ayman Safadi, the foreign minister of Jordan, explained.
Before end-day last Friday, gold had already increased by 2.2% for the week. Many traders are turning to the secure asset to secure their wealth in fear of a widespread meltdown as numerous nations, including the U.S., are already getting involved.
The U.S. has taken Israel’s side thus far, with President Biden stating “how support from the American people and the Congress, frankly, is essential.” In Thursday’s most recent report, President Biden proposed additional billions of dollars in aiding both countries.
As the conflict appears to be nowhere near a conclusion, gold has gained critical support amid its most recent headwind: high interest rates. The Federal Reserve has been climbing interest rates since Spring, yet the latest data and meeting minutes show that the committee may finally be done with the rate-hiking cycle. This news, combined with the tightening conflicts, has offered an ideal climate for gold performance rates.
In recent remarks relating to the Economic Club of New York, Federal Chair Jerome Powell agreed “in principle” that the increasing yields have helped the constricting financial conditions and “at the margin” could reduce the need for future interest rate hikes. This statement, coming out after September’s dovish meeting minutes, provided even more evidence of the fact that we likely won’t see a hike in November. Higher interest rates increase the opportunity costs of investing in non-yielding assets, like gold, so keeping rates unchanged would bode well for the precious metal.
Lorie Logan, the Dallas Federal Reserve President, also released statements boding well for gold. Logan explained on Thursday that, based on recent data and the increased bond market, the committee likely has more space to make its next decision. “We have some time,” Logan stated when referring to the next interest rate hike, cut, or pause decision.
Logan noted that inflation may be lowering but still hasn’t reached its 2% target, so the committee must assess further before taking action. The job market’s current strength may be preventing the Fed from correcting the current inflation rate.
Following the latest statements from Fed members, the likelihood of a rate pause has increased by around 10 percentage points. According to CME’s FedWatch Tool, the current likelihood of rates remaining the same in November is 98.4%. The markets are betting a 1.6% chance of a rate cut during the next meeting, meaning there’s currently a 0% chance of a rate increase, according to this estimation.
The next Federal Reserve meeting will occur from October 31 to November 1. The final FOMC gathering for the year will take place on December 13. The current bets for December’s meeting are still mixed, showing a 74.6% chance of a rate pause, a 1.2% chance of a rate cut, and a 24.2% chance of a rate hike.
How gold continues to progress throughout the coming weeks will weigh heavily on the Fed’s upcoming decision and the conflicts overseas. We could see performance above $2,000 per ounce if safe-haven demand continues rising and the Federal Reserve enacts particularly dovish strategies. As always, investors should consult their financial advisors before making any portfolio moves.
