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Is investing in gold an opportunity or a risk at this time?

2024-04-16 15:52

Abstract: Abstract:Gold has long been considered a valuable and stable investment option. Investors and traders closely monitor gold prices as they can provide insights into market trends and economic conditions. However, gold prices are influenced by a variety of factors that can fluctuate daily. In this article, we will explore some of the key factors that influence gold prices today.


Gold prices have been on a tear from February to April 2024, a development that has caught many by surprise. After a slight rise towards the later months of 2023, the precious metal has surged since mid-February, defying some earlier predictions of a cool-off.

The reasons for the recent rise in gold prices can be attributed to several key factors:

1. Changes in the Fed's monetary policy expectations: The market generally expects that the Fed's interest rate hike cycle may end and may turn to interest rate cuts in the future. This expectation has led to a weaker US dollar, and gold usually has an inverse relationship with the US dollar, i.e. gold prices rise when the US dollar is weak.

2.De-dollarization trend: There is a growing global call for a reduction in dependence on the US dollar, and some countries are taking steps to reduce their dependence on the US dollar, which has increased the attractiveness of gold as an alternative reserve asset.

3. Geopolitical Uncertainty: Geopolitical events such as political conflicts or trade wars can greatly affect investor sentiment and subsequently influence gold prices. During times of geopolitical uncertainty or instability, investors often view gold as a safe investment due to its historical value and limited supply. The increased demand for gold during these periods can lead to higher prices.

Gold prices rose in Asian trade on April 14, and were in sight of record highs as demand for safe havens was boosted by Irans attack on Israel, although strength in the dollar limited major gains in the yellow metal.

Markets were also waiting to see just how Israel would respond to Irans strike, given that the attack caused limited damage, and that Tehran also said the move concluded its offensive against Israel. This helped limit some haven demand.

Spot gold rose 0.6% to $2,357.81 an ounce after hitting a record high of $2,372.62 an ounce on April 14, while June gold futures steadied at $2,373.0 an ounce after hitting a record high of $2,389.0 an ounce.

      Haven demand underpins gold prices

      The biggest point of support for gold prices was a drone and missile strike by Iran against Israel over the weekend, in supposed retaliation for an attack on an Iranian embassy in Syria.

      The move marked the potential entry of Iran into the long-running Israel-Hamas war and presented the possibility of a greater conflict in the Middle East, which could also draw in the U.S.

      However, the Iranian strike appeared to have caused limited damage in Israel. Israeli ministers also reportedly said that they had no plans to immediately retaliate over the attack.

      The United States also seems to be trying to de-escalate the situation, stating that it would not engage in any retaliatory action against Iran.

      This notion, coupled with recent strength in the dollar, put a cap on greater gains in gold. The yellow metals outlook was also somewhat muddied by the prospect of higher-for-longer U.S. interest rates, following hotter-than-expected inflation readings last week.

      Fears that Iran's unprecedented attack on Israel over the weekend could trigger rounds of retaliation supported gold prices. However, the UK, France, and Egypt condemned Iran's actions, while Saudi Arabia called for restraint, which brought some comfort to the market, at a time when risk sentiment remained in a more favorable position in early Asia.

      S&P 500 futures rose 0.30% on the day, reflecting optimism in the market, which limited further gains in gold prices.

      Looking ahead, gold could continue to rally to $2,400 an ounce if the conflict in the Middle East intensifies. However, the resurgence of demand for the US dollar due to the increase in safe-haven funds and hawkish expectations from the Fed could play a headwind effect on the rally in gold prices.

      4. Economic data performance: U.S. Economic data showed signs of slowing economic growth, such as manufacturing PMI, unemployment rate, and other data that fell short of expectations, increasing the market's fear of recession, thereby increasing the attractiveness of gold.

      U.S. consumer inflation data released on April 10 was hot, and investors pushed back their expectations for the first rate cut from June to September. Market participants have also reduced bets on the number of rate cuts this year to less than two from about three or four a few weeks ago. The weaker-than-expected US producer price index released last Thursday raised hopes that the Federal Reserve is about to cut interest rates, which also gave XAU/USD an additional boost.

      5.Inflation expectations: Although U.S. inflation has fallen from its highs, the market is still worried about the global economic downturn and the persistence of inflationary pressures, and the value of gold as a hedge against inflation has been recognized by the market.

      6.Increased volatility in the financial market: The volatility of the capital market has increased, investors are looking for stable investment channels, and gold is favored for its stable store of value.

      In conclusion, understanding the factors that influence gold prices today is essential for investors and traders alike. Global economic conditions, inflation and currency fluctuations, interest rates, and geopolitical uncertainty all play significant roles in determining the value of gold. By keeping a close eye on these factors, individuals can make more informed decisions when it comes to investing in this precious metal.

      Is this the time to buy gold?

            Goldman Sachs analysts said on April 12, that geopolitical risks continued to escalate, raising the price of gold to 2,700

            Gold prices will end the year higher than expected as emerging market central banks continue to buy gold amid geopolitical risks. They previously raised their year-end price target for gold to $2,700 from $2,300 an ounce. Gold has risen more than 20% from February to April 2024, hitting a new high of more than $2,400 an ounce on April 12, amid fears that Iran's attack on Israel could lead to an escalation of war in the Middle East.

            What will the gold rally be?

            Goldman Sachs believes that four major trends could dampen demand for gold. The first is that emerging market central banks have reduced their purchases due to the easing of geopolitical tensions, or because central banks have already reached their hard asset targets.

            “Peacefully resolve the ongoing problems in the Middle East and Ukraine, and address the associated sanctions risks,” the report said. “This could limit the buying behavior of emerging market central banks. ”

            China's efforts to support the property sector could lead Chinese consumers to reduce their gold purchases. Finally, the Fed's hawkish propensity to raise interest rates to curb inflation will also reduce demand for gold.

            “But the reality is that the combined short-term potential of these factors is low, which underpins our expectation of continued bullish momentum in gold prices,” Goldman Sachs said.

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