On Monday (October 9th), gold prices hit their largest increase since May. After the tense situation intensified after Hamas attacked Israel, safe haven demand increased. Federal Reserve officials delivered dove speeches, and the US dollar index fell to a low in more than a week, providing upward momentum for gold prices.
In late US trading, spot gold closed at $1861.05 per ounce, a significant increase of $29.23, or 1.60%, with a daily high of $1863.50 per ounce and a low of $1844.16 per ounce. On Tuesday, spot gold continued its upward trend in the Asian market, reaching a peak of over a week at $1965.21 per ounce.
While gold surged, other precious metals saw mixed gains and losses on Monday: spot silver rose 1.33% to close at $21.872 per ounce; Spot platinum rose 1.22% to close at $888.66 per ounce; Spot palladium plummeted 1.92% to close at $1134.35 per ounce. As the Israeli-Palestinian war escalates, investors are flocking to safe haven assets. More than 1300 people died, thousands were injured, and approximately 100 were taken hostage. Israel has cut off water and electricity supply to the Gaza Strip. Israel has launched a deadly strike on the Gaza Strip in retaliation for Hamas's devastating attacks. Israeli Prime Minister Netanyahu said that retaliatory actions have only just begun and that what we have done to the enemy will be passed down from generation to generation.
As the financial market prepared to face the adverse factors and fluctuations brought about by armed attacks in Gaza, gold prices rose 1.7% on Monday. Due to the potential escalation of tensions in the Middle East due to conflicts, oil prices have skyrocketed. The Middle East region has nearly one-third of the global oil supply. The US dollar also strengthened for a while, but the US market changed course and fell. The implied volatility of Comex gold and the deviation of call options have also increased, with the December gold price increasing by the largest amount since August.
According to the influence of geopolitical factors, especially those related to Iran, it may have a broader impact on the broader financial market.
For the Federal Reserve, Dallas Federal Reserve Chairman Logan said that in view of the recent surge in the yield of long-term U.S. government bonds, the need for the Federal Reserve to further raise the benchmark interest rate may be reduced.
Logan said in a speech at the National Association for Business Economics (NABE) that "under the same conditions, for the same federal funds rate, a higher term premium will lead to a higher term interest rate." Term premium is an additional compensation for bearing interest rate risk when investing in bonds with longer maturities.
Therefore, "the increase in term premium can take on some of the cooling of the economy, thereby reducing the need for the Federal Reserve to further tighten monetary policy." Logan said, "The increase in term premium has played a significant role in recent changes in the yield curve, although there is still uncertainty about its scale and persistence
Recently, the Federal Reserve's Vice Chairman in charge of regulating financial affairs, Barr, mentioned in another event the September non farm report that unexpectedly "exploded" last Friday. He believes that some important factors indicate that the supply and demand of the US labor market are tending towards a better balance.
Barr pointed out that the salary growth rate in the non agricultural report has cooled to a certain extent. "The current situation indicates that we have made significant progress in driving inflation in the direction we want
Subsequently, Federal Reserve Vice Chairman Jefferson stated that he would pay attention to the tightening effects brought about by rising yields. The Federal Reserve can act cautiously in a better risk balance. Jefferson stated that higher bond yields will be considered when evaluating future interest rate paths.
Despite the soaring bond yields, gold prices have been in a low volatility period for most of this year, which typically puts significant pressure on gold prices. In recent weeks, gold has plummeted significantly due to increasing expectations that the Federal Reserve will maintain higher interest rates for a longer period of time to curb inflation.
Ed Moya, a senior market analyst at Oanda, said: "The gold price is rising because new geopolitical risks have prompted investors to seek refuge when the US bond market is closed." "The war between Israel and Hamas has shocked the market, and the risk that this war may further spread in the entire Middle East region is also rising." Moya believes that the recent technical support for the gold price is at $1920.
Ole Hansen, head of commodity strategy at Saxo Bank, said that the tension in the Middle East may mean, The Federal Reserve will not "continue to raise interest rates in the face of increased uncertainty, although rising oil prices may have an inflationary impact, the possibility of interest rates peaking suddenly becomes closer." "Our conclusion is that this development may indicate that gold prices will be at a low level, and as people's attention shifts towards rate cuts instead of rate hikes, gold may face additional demand from investors
This morning, funds flowed into the US dollar and gold, and last Friday's Hamas surprise attack on Israel caused serious damage in the region. Tensions have continued to escalate, with oil prices rising by nearly 4%. There are rumors that Iran helped Hamas organize the attack, and the US has said it will send warships to the region. On Monday, the escalation of tensions brought a wave of panic to the financial markets, "said Swissquote Bank Senior analyst Ipek Ozkardeskaya stated in a report.
It is difficult to predict the extent to which geopolitical shocks will affect price trends
Preliminary data from the gold futures market of the Chicago Mercantile Exchange Group (CME Group) shows that open positions increased for the third consecutive trading day last Friday, with more than 1000 contracts added this time. Trading volume followed closely, increasing by nearly 64000 contracts after two consecutive days of decline.
According to an article by financial website FXStreet, the significant rebound in hardware prices last week was accompanied by an increase in open interest and trading volume, opening the door for further short-term gains. Against this backdrop, gold prices are expected to temporarily re target the key area of $1900.
Future prospects
1. Bob Haberkorn, senior market strategist at RJO Futures, stated that there are still many doubts about what will happen in the Middle East next. If the situation further escalates, the gold price may rise to $1900.
During periods of political and economic turmoil, gold is considered a safe means of preserving value.
2. This week, the focus of market attention shifted to the minutes of the Federal Reserve's latest monetary policy meeting and the US inflation data to be released later this week.
Ole Hansen, head of commodity strategy at Saxo Bank, wrote in a report: "We believe that the Federal Open Market Committee (FOMC) will not continue to raise interest rates in the face of increased uncertainty. Despite the potential inflationary impact of rising oil prices, the prospect of interest rates peaking has suddenly approached
Focus on Tuesday (Beijing time)
18: US September NFIB Small Business Confidence Index
21:30 Federal Reserve Bostick delivers a speech
22:00 US August wholesale sales monthly rate
At 01:00 the next day, Federal Reserve Governor Waller delivered a speech
At 03:00 the next day, the Federal Reserve's Kashkari delivered a speech
