As the war between Israel and Hamas intensifies, geopolitical uncertainty continues to support gold's safe haven appeal as this precious metal withstands the impact of rising bond yields. Similar to the previous week, gold buying was strong last Friday as investors hoped to hold some gold as insurance over the weekend. Previously, there were reports that the Israeli army may launch a ground attack on Gaza over the weekend. This hedging demand has driven gold prices to their highest level in three months.
In the past week, gold prices have risen by about 4% from last Monday's low. Phillip Streible, Chief Market Strategist at Blue Line Futures, said that despite the impressive performance of hardware prices last week, given the negative sentiment in the market, this is not surprising. He said: "Gold is seriously undervalued. Now we see some foam in the market, because investors are competing for gold."
David Morrison, senior market analyst at Trade Nation, said that gold is doing exactly what it should do during times of crisis. He said, "Gold has broken through all the major resistance levels of $1900, $1950, and $1980, and I think the market wants to see $2000." "It's still too early to draw conclusions, but this may be driving gold prices to historic highs
Not only has gold prices experienced an impressive rebound in the past two weeks, but at the same time, the Federal Reserve remains steadfast in its stance of maintaining interest rates within the restricted range for the foreseeable future. Federal Reserve Chairman Powell stated at the New York Economic Club last Thursday that the Federal Reserve is committed to reducing inflation to 2%.
This stance has helped to some extent drive long-term bond yields to a 16 year high, with 10-year US Treasury yields hitting 5% last week. However, some economists and market analysts point out that concerns about the continuous growth of US government debt are also an important factor driving up bond yields.
Some analysts point out that people are worried that the Federal Reserve may lose control over the long end of the curve, which will force them to buy bonds and benefit gold.
Morrison stated that for the market, debt is not important until problems arise. He said, "$33 trillion is a quite convincing reason why you may not want to hold a large amount of US debt. Unfortunately, I don't know how high the yield is to attract buyers
Ole Hansen, head of commodity strategy at Shengbao Bank, stated that with geopolitical uncertainty, gold has now become an economic haven. He said in a report last Friday, "We believe that the continuous surge in US bond yields has made traders and investors increasingly concerned about US fiscal policy, especially whether the recent surge in real and nominal yields will break 'something'
But Hansen also pointed out that although speculative interest seems to be driving up gold prices, a key investment area is still unwilling to join the rally. He pointed out that the holdings of precious metals in gold ETFs continue to decline.
Hansen said, "Many asset management companies trade gold through ETFs, and they continue to be concerned about the strength of the US economy, rising bond yields, and the possibility of interest rates delaying their peak again, and do not want to participate The cost of providing funding for non interest bearing precious metal positions remains high, which has been an important reason for asset management companies to reduce their gold positions over the past year. In recent updates, we believe that this trend may continue until we see a clear downward trend in interest rates and/or an upward breakthrough, forcing actual fund allocators to respond
Tavi Costa, portfolio manager at Crescat Capital, stated in a social media post that a rise in gold prices to $2000 may be a signal that gold investors are starting to anticipate some yield curve control measures from the Federal Reserve. He said, "The government cannot continue to worsen the debt problem exponentially while the Federal Reserve intentionally increases its debt service costs." "We are facing a triple problem of macroeconomic imbalances, and ultimately we must restore financial repression
Gold is beginning to smell that certain yield curve control measures are inevitable.
However, not all analysts believe that the rise in gold is sustainable.
Alex Kuptsikevich, a senior market analyst at FxPro, pointed out that the fact has never proven that using gold as a geopolitical safe haven is sustainable. He stated that the intensification of geopolitical uncertainty is not reflected in the bond or stock markets.
Kuptsikevich said: "The gold price is rising against the trend, and may soon lose its momentum. The gold price is close to the overbought area, and under the pressure of fundamental factors such as high bond yields and a stronger dollar, the gold price is easy to reverse. The Russia-Ukraine conflict led to a similar price spike, but then people worried about a supply interruption in a major producer country. Even so, the gold price is still far below the level before the 'wartime rise'."
Although investors will continue to focus on geopolitical headlines this week, the busy economic affairs may also bring some volatility. Economists say their focus will be in the middle of this week, when the initial US GDP for the third quarter will be released. Economists point out that the resilience of the US economy is an important reason why bond yields have risen to 16 year highs.
Important inflation data will be released this week, which may affect gold prices. Some analysts say that although the United States may not fall into a recession, as economic growth slows and consumer prices rise, there may be some stagflation in the United States.
