Gold is tracking up towards $1,800 an ounce after reports of a missile crossing over the Ukrainian border causing two deaths in Poland, increasing demand for gold as the safe haven asset that has endured through centuries of human conflict.
The war in Ukraine has been a supporting factor for the price of gold since the conflict started in February, however, after an initial spike, investors soon priced this into their models resulting in the actions of the Federal Reserve and the hawkish macroeconomic climate that has been in place for much of the year becoming the dominant factors driving markets and the price of gold.
Now as the early signs are that the Fed may be nearing the point at which it tones down its aggressive interest rate hikes, gold is coming under less pressure from a macroeconomic perspective, enabling the geopolitical elements to take centre stage.
The fact that gold is nearing $1,800 an ounce when barely a week ago it looked set for a period of sideways trading around $1,650 an ounce illustrates how quickly things can switch in markets. A better than expected US inflation figure, an unexpected turn in crypto markets following the collapse of FTX and the missile strike in Polish territory has heightened gold demand.
How long gold can sustain these higher prices will still ultimately depend on the actions of the Fed and the size of its December interest rate hike. If it only increases its benchmark rate by 50 basis points, as is now the market expectation, then gold could hold onto some of its gains. However, another 75 basis point hike would be a brutal reality check and likely to see gold crash back down again.
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