Many factors control the prices of the precious metal, whether those related to monetary policy trends, as well as geopolitical factors that impose themselves on the global scene, enhance economic uncertainty, and encourage traders to go to safe havens.
In light of these factors, analysts believe that the era of cheap gold seems to be over, and that a return to levels below $ 1800 an ounce has become unlikely in light of the current developments in the markets, even if the US Federal Reserve defied expectations.
- Gold prices stabilized on Tuesday after touching a six-month high.
- By 0643 GMT, spot gold was up 0.1 percent at $2015,33.16 an ounce after hitting its highest since May <>.
- U.S. gold futures for December delivery rose 0.2 percent to $2015,70.<> an ounce.
According to City Index's senior analyst, Matt Simpson, "lower bond yields and bets that the Fed may cut sooner than originally thought have certainly helped gold shine."
"It's simply a question of whether inflation will continue to decline at a fast enough pace to justify bets on interest rate cuts. I bet that won't happen, and that gold could find that bump on the way," he said, referring to support levels at 1990 or 1960.
Where are gold prices headed?
For his part, Ahmed Azzam, a senior analyst of capital markets at Equity Group, explains in exclusive statements to the site "Economy of Sky News Arabia" the prospects of gold prices in the short, medium and long term.
In the short term, he explains that "prices reached the highest level of six months, after breaching the levels of two thousand dollars, which are psychological levels for gold prices. These recent increases are due to the market calculating the possibility of a rate cut starting next March."
"Markets may have overestimated the March rate cut, given that there will only be four inflation readings and jobs data, and may not be enough to give a clearer picture to the Fed. Economic growth in the United States remains relatively good (4.9 percent in the previous quarter), which could give some time to continue tightening monetary policy."
While in the longer term, gold could be the "winning horse" during 2024 in Azzam's estimation, because if inflation remains above central bank targets, gold is a cover for investors from high inflation, and if central banks move to cut interest rates as widely expected, this will historically enable gold to record rising waves."
He points out that in the long term we could see breaks of the "historical levels" recorded at $2075 per ounce, and then the trend to levels of 2145 and then levels of $2350 "and this is closely related to the absence of a shock to the markets regarding expectations of a rate cut in mid-2024 at the latest (..)".
Interest rate cut bets
Hanan Ramsis, a capital markets expert, a member of the board of directors of Al-Hurriya Company in Egypt, said in exclusive statements to the "Economy of Sky News Arabia" website:
- Gold will not return to the $1800,<> per ounce level, with bets mounting that the monetary tightening cycle (raising interest rates to control inflation) is coming to an end.
- When US interest rates rise, this will strengthen the dollar's position, while when there is a tendency to reduce them, it reflects negatively on the US currency, which is what happened recently in light of the dollar's declines against the basket of currencies.
- A weak dollar means gold will rise "and the precious metal will take an upward trend, and continue these rises gradually."
The dollar index touched its lowest level since late August against its rivals, making gold less expensive for holders of other currencies.
The yield on the 10-year Treasury note hovered near a two-month low of 4.363 percent.
The financial markets expert explained to Sky News Arabia that gold price movements are also linked to "geopolitical factors"; the higher the tensions in this context, the more traders resort to safe havens and stay away from speculation.
She believes that after the war in Gaza recently, "there was a relatively different trend, given that different investment channels resorted to dealers, not just gold, including digital currencies, silver markets and even financial markets."
On her perceptions of the path of the precious metal globally in the short term, Ramses explains that the monetary tightening policy usually leads to fears of investment, and pushes the direction of traders to safe havens - especially gold - and while she expects that the US Federal Reserve will not resort to cutting interest rates soon and may be forced to raise it again by a quarter of a percentage point with the crisis of the debt ceiling and external financing (for Ukraine and Israel), gold prices may be affected by this to witness stability or decline somewhat without returning again to the levels of $1800 per ounce.
- After the jobs data in October, market bets on the US Federal Reserve's direction to cut interest rates from June 2024 increased.
- State Street estimates that the US Federal Reserve will cut interest rates in the US by up to 200 basis points in 2024.
The market is currently awaiting personal consumption expenditure data, the Fed's preferred inflation measure, on Thursday.
Attention is also focused on revised third-quarter US GDP figures, due on Wednesday.
At the same time, the capital markets expert pointed out that dealing with gold varies from one country to another, because there are other factors that stimulate investment in the metal as a safe haven away from factors associated with international external factors, in Egypt, for example, dealers resort to gold as a store of value for fear of a "float" coming to the price of the currency.
According to Kyle Rodda, financial markets analyst at Capital.com, "what is currently driving gold is the decline in the dollar due to the weak data released recently," adding: "The economic data that will be released from the US this week, whether on growth or inflation, will strengthen or weaken speculation on whether gold will remain above $2000,<>."
Net gold imports to China, the biggest consumer, via Hong Kong, fell for the second consecutive month in October as an erratic economic recovery weighed on demand in the main bullion market, data showed on Monday.
For his part, says CEO of VI Markets Ahmed Moati, in an exclusive statement to the site "Economy Sky News Arabia" that gold continues to rise, especially since the seventh of last October, and since the beginning of the war in Gaza, pointing out that the precious metal after it was trading at levels of $ 1850 per ounce, currently reached $ 2015 approximately.
"These rallies indicate investors' concerns about the consequences of current geopolitical tensions and the uncertainty prevailing in the markets. It is known that gold rises in times of crisis. The crisis in the Middle East is casting a shadow over the scene, despite the recent truce in Gaza."
He continues: "It was expected that the truce would contribute to calming those fears, and then the decline in gold prices, but what happened is quite the opposite, prices have jumped from levels below two thousand dollars per ounce to the current levels mentioned, and this means that dealers price the crisis and its repercussions in that way."
A second factor affecting the escalation of these fears that push for the recovery of gold prices is related to concerns related to waterways and trade movement, in light of the threats in the Red Sea (..) According to Maati, who points out in his interview with the site "Economy of Sky News Arabia", that the successive rises in gold prices also reflect those fears (..). Added to these factors is also the Fed's attitudes in terms of fixing interest rates.
Since March 2022, the US Federal Reserve has raised interest rates by 525 basis points to the current range of 5.25 percent to 5.50 percent.
Data from the minutes of the Fed's meeting on October 31 and November <> showed that monetary policymakers at the US central bank believe that interest rate increases have contributed to slowing labor market growth in the world's largest economy.
The CEO of VI Markets believes that these factors combined indicate that gold prices are still waiting for new highs "and it is possible to reach the levels of $ 2070 per ounce again."