Gold heads into Friday having pared the week’s losses on a late Thursday rally.
However, at $1955 per ounce, it remains some 1.9% down on last Friday’s close. It is unclear whether the recent hint of positive momentum can be maintained in the face of resurgent rate headwinds and falling geopolitical risk.
As widely anticipated, the Israeli government has now officially sanctioned ‘humanitarian pauses’ in the current regional conflict, reinforcing investor perceptions of declining geopolitical risk. While this is undoubtedly putting downward pressure on ‘safe-haven’ gold, it is notable that Israel’s central bank believes that the economic impact of this conflict will remain significant even in 2024.
The US rate environment has also become increasingly challenging for non-yielding assets, such as gold this week, with Fed Chairman Powell reiterating a hawkish bias in the face of what is still considered resilient economic growth and waning deflation from supply de-bottlenecking.
Given Powell’s position as a centrist within the voting members of the FOMC, this speech suggests an ongoing hawkish bias at the Fed. After last Friday’s precipitous fall, 2-year Treasury yields have now ground back north of 5%, while long rates have also drifted higher. Futures markets are paring their expectations of an early rate cut next year and all of this is helping to support a stronger dollar and put a brake on gold.
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