As Israel’s war with Hamas intensifies, geopolitical uncertainty continues to support gold’s safe-haven appeal. As a result, the gold price challenges rising bond yields.
Has there been a bubble in the gold price?
Similar to last week, investors wanted to hold some gold as insurance for the weekend. Thus, gold saw strong buying on Friday. News of Israel’s ground operation unsettles the markets. This safe haven demand pushed the gold price to its highest level in the last three months. The gold price is up nearly 4% since its lowest level last week. Phillip Streible, chief market strategist at Blue Line Futures, says it’s no surprise that gold is rising above $2,000. In this context, the analyst makes the following statement:
Gold was very undervalued and now we are seeing some froth in the market. Because all the investors are chasing themselves to own it.
The gold price is probably heading to its peak!
cryptokoin.comAs you follow from , gold has recorded an impressive rise in the last two weeks. It also did so despite the Federal Reserve maintaining its stance that it would keep interest rates in restrictive territory for the foreseeable future. David Morrison, senior market analyst at Trade Nation, says gold is doing exactly what it’s supposed to do in times of crisis. The analyst draws attention to the following levels:
Gold surpassed all major resistances at $1,900, $1,950, and $1,980. I think the market wants to see $2,000. It’s a little early to tell. But this could be the rally that pushes prices to an all-time high.
Some analysts say there are fears the Fed will lose control over the long end of the curve. He also notes that this will force them to come in and buy bonds, which will be positive for gold. David Morrison states that borrowing is not important for the market until it is borrowed.
Speculative interest is in the driver’s seat for the gold price!
Ole Hansen, head of commodity strategy at Saxo Bank, says that with geopolitical uncertainty, gold has now become an economic safe haven. However, Hansen also notes that although speculative interest appears to be driving the gold price, a significant investment segment remains reluctant to participate in the rally. The analyst points out that the precious metal assets of gold-backed exchange-traded products continue to decrease. In this context, the analyst makes the following comment:
Asset managers, many of whom trade gold through ETFs, continue to focus on U.S. economic strength, rising bond yields and potentially another delay in peak rates. The cost of funding a precious metal position with no interest payments remains high. It was also a key driver behind the reduction of gold positions held by asset managers throughout the year. With recent updates, we think this trend will likely continue until we see a clear trend towards lower rates and/or a breakout to the upside that forces real money allocators to react.
Did gold investors get a sign from the Fed?
Crescat Capital portfolio manager Tavi Costa says a rise in the gold price to $2,000 could be a sign that gold investors are starting to expect some yield curve control from the Fed. In this regard, Costa shares the following evaluation:
It is difficult for the government to continue making the debt problem exponentially worse. But in this environment, the Fed is deliberately increasing the cost of servicing this debt. We are faced with a trio of macro imbalances. Moreover, financial pressure eventually needs to be re-established.
The gold price is currently rising against the tide!
However, not all analysts are convinced that gold’s rise is sustainable. Alex Kuptsikevich, senior market analyst at FxPro, is one of them. The analyst notes that buying gold as a geopolitical safe haven is never sustainable. Kupikevich says that increasing geopolitical uncertainty is not reflected in either bond or stock markets. In this context, the analyst interprets the effects of the developments on the gold price as follows:
The gold price is currently rising against the tide. This rise is likely to stop sooner or later. Gold is currently close to overbought territory. This leaves it vulnerable to a reversal under pressure from fundamental factors such as higher bond yields and a strengthening dollar. The Russia-Ukraine conflict caused a rise in price similar to what we already have. But then there were fears of supply disruption from a major manufacturer. Even then the price fell well below where it started before the ‘war rally’.
Next week’s data and event agenda
Investors will continue to monitor geopolitical headlines next week. Additionally, it is possible that the busy economic agenda may create some fluctuation. According to economists, the focus will be on the third quarter Gross Domestic Product data of the USA. Next week will end with key inflation data that has the potential to impact the gold price.
Some analysts say the U.S. may not go into recession, but may see some stagflation as lower growth is offset by higher consumer prices. Market attention will also be on global central bank policies. The Bank of Canada and the European Central Bank will announce their monetary policy decisions next week. Economists will weigh how central banks walk the line between slower growth and stubborn inflation.
- Tuesday: US leading PMI data.
- Wednesday: BoC monetary policy decision, new home sales.
- Thursday: ECB monetary policy decision. US Q3 GDP. US durable goods. US pending home sales.
- Friday: Core PCE price index. Personal income and expenses.
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