Gold prices edged lower in the first two days of the week, in relatively quiet trading compared with the hefty gains seen last week.
Prices briefly edged as low as $1,955 per ounce Tuesday before rising as high as $1,975 later in the session. That compares with a sharp rally the previous week when prices jumped from $1,911 to $1,997 per ounce – a gain of 4.5%.
The strong gains reflected increased interest in safe-haven assets amid heightened geopolitical tensions in the Middle East, with the ongoing conflict in Palestine and Israel adding a risk premium to precious metals due to the potential for hostilities spreading more widely in the region. Moreover, these risks are increasing the chances that the US Federal Reserve will keep rates at the current level, rather than hiking them, in the final meetings this year.
The slight pullback in prices so far this week may indicate a lower risk of a wider conflict, at least for the time being. Nevertheless, the markets are likely to remain on edge due to the ongoing conflict.
In the near term, traders will be watching out for further macroeconomic indicators to provide renewed direction for gold prices.
Wednesday is set to reveal the Australian Q3 inflation rate, while the Bank of Canada (BoC) is expected to keep rates on hold at a 5.0% peak for this cycle.
Then on Thursday, the ECB is due to announce an interest rate decision, with general expectations that rates will have already peaked at 4.5%.
Notwithstanding the current risk, the tightening monetary policy environment provides a bearish backdrop for gold prices, while signs of a peak in interest rates in the larger economies could help clear the way for higher prices for the precious metal in the longer term.
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