Gold Eases as Rate Cut Concerns Counter Geopolitical Risks
On Tuesday, the allure of gold diminished as anticipations for fewer rate cuts by the U.S. Federal Reserve this year dimmed its sheen, despite its role as a safe haven amid enduring tensions in the Middle East.
By the late morning, spot gold had receded by 0.2% to $2,376.90 per ounce, retreating from Friday’s all-time peak of $2,431.29 reached ahead of Iran’s expected counterstrike against Israel. This fall in gold prices reflects a recalibration of expectations in the face of U.S. economic resilience.
Recently disclosed data highlighted a surge in U.S. retail sales for March, surpassing forecasts and painting a picture of an economy with enduring consumer strength. This robust economic indication contributed to a rise in 10-year Treasury yields for the second consecutive day, thus undermining the appeal of non-interest-bearing gold.
Jim Wyckoff, a senior analyst at Kitco Metals, noted, “The market is in pause mode and waiting for the next development in the Israeli-Iran confrontation. Should this situation intensify, another rally in gold is likely.” He added, “However, if tensions de-escalate, attention will pivot back to the Federal Reserve’s interest rate decisions. The emerging consensus is that the Fed is unlikely to lower rates in the near term, injecting bearish momentum into the gold and silver markets.”
Federal Reserve Chair Jerome Powell previously indicated to a U.S. Senate panel that the central bank was nearing the point of being confident enough in declining inflation to consider rate cuts. Nevertheless, recent strong economic data have tempered these expectations, casting doubt on the immediate future of rate adjustments.
In light of these developments, Julius Baer analyst Carsten Menke has updated his outlook on gold, stating, “We lift our 3 and 12-month price targets to $2,200 and $2,000 per ounce, respectively. Although we stand by our view that the medium to longer term prospect is more tilted towards downside risk, we advise against positioning for lower prices at this juncture.”
In a related note on market adjustments, the Shanghai Futures Exchange announced its decision to increase trading limits for gold and silver contracts from 6% and 7% to 8%, underscoring the volatility and heightened interest in these commodities.
As for other precious metals, spot silver experienced a decrease of 1.4% to $28.48 per ounce. Conversely, platinum saw a slight uptick of 0.3% to $971.85, while palladium dropped by 1.3% to $1,021.75, highlighting the diversified responses among precious metals to the current economic and geopolitical landscape.
The dynamic interplay between rising interest rate expectations in the U.S. and geopolitical flare-ups in the Middle East continues to shape the trajectory of gold prices. As investors navigate these turbulent waters, the precious metal remains a focal point of global financial markets, reflecting broader economic trends and investor sentiment.
