- Gold prices extended their gains and hovered near record highs as safe-haven demand for the precious metal increased.
- According to gold trading platforms, the rise in gold is gaining momentum ahead of the US presidential election in November.
- Former President Donald Trump and Vice President Kamala Harris are competing in the polls, and the possibility of Trump’s victory is seen as a threat to a stable geopolitical outlook.
- In addition, the 16th BRICS summit is being held in Russia, where Moscow is discussing finding an alternative to the dominance of the US dollar.
- Accordingly, the gold-backed currency is being promoted as a viable option.
Geopolitical Tensions Fuel Gold Prices
Despite efforts to stabilize the situation in the Middle East, the war between Israel and Iran-backed Hezbollah in Gaza and Lebanon continues. According to analysts: “US Secretary of State Antony Blinken does not appear to be close to securing a ceasefire despite headlines announcing progress, as was the case during his last visit.”
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Gold prices on the COMEX exchange have risen by more than 30% since the beginning of this year. Commenting on this, Carsten Fritsch, commodity analyst at Commerzbank AG, said in a report: "As it stands, this would be the strongest annual increase in 45 years." Furthermore, reports from Sky News claimed that Blinken had to take shelter in a bunker on Wednesday after sirens sounded over Tel Aviv. At the same time, Trump's trade narrative has boosted the upward trend of gold. The trade narrative in the United States has changed with the increased likelihood of Donald Trump winning the presidential election.
Kelvin Wong, senior market analyst at OANDA, says: "Given that Trump's 'generous' proposal to cut the corporate tax rate from 21% to 15% is likely to further widen the US federal deficit, which could in turn lead the market to question the creditworthiness of the US government (such as the possibility of more frequent government shutdowns), which could erode confidence in US Treasury bonds and boost the gold price index."
If Trump wins, he is likely to impose more tariffs on countries like China, which could reignite a trade war between the world's two largest economies. This is positive for gold in terms of safe-haven assets. Therefore, Trump's proposed tax and trade policies are likely to reignite upward inflationary pressures in the medium to long term.
Market Sentiment Supports Gold
Investor sentiment on gold has remained positive even as prices have risen. As such, traders are believed to be treating any kind of price decline in gold as a major buying opportunity. This means that any decline in gold prices is short-lived and limited in scope. Moreover, large inflows have been flowing into gold exchange-traded funds (ETFs). According to a Bloomberg report, total inflows into gold ETFs have reached 13 million tonnes over the past week. However, Commerzbank AG believes that the current rally in gold prices is overdone, and that a correction is long overdue. As such, it is not possible to predict when and from what level the correction will start. However, the correction is expected to increase with the price level.
Gold Price Analysis and forecast Today:
Gold price gains reached the resistance level of $2785 per ounce, the highest in the history of gold price, and were enough to push all technical indicators towards strong overbought levels. Gold price was then exposed to profit-taking sales that pushed it towards the level of $2715 per ounce, which is stable around it at the beginning of trading on Thursday.
The gold price has ignored the rise of the US dollar to its highest level in two and a half months. The US Dollar Index DXY rose above 104.4 on Wednesday, reaching its highest level since late July, as investors continued to reduce bets on aggressive interest rate cuts by the Federal Reserve, while preparing for the upcoming US presidential election. Also, the US dollar is tracking the rise in Treasury yields, with the benchmark 10-year Treasury note reaching 4.22% for the first time since late July amid strong economic data and concerns about the deficit. Now, markets are pricing in a 90% probability that the Federal Reserve will opt for a more modest 25-basis point interest rate cut in November after a hefty 50-basis point cut in September.
Despite record gold price gain, with less than two weeks to go before the next Fed meeting and the US presidential election, global investors are buying the dollar, cutting bets on an aggressive easing cycle and betting that the incoming administration’s policy mix will wreak havoc on other major economies while generating higher levels of inflation at home.”
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