Gold continues to make historic gains

18 Ekim 2024

Gold continues to make historic gains despite strong dollar amid growing uncertainty

Market comment on behalf of Samer Hasn, Senior Market Analyst at XS.com

Gold made further historic gains in early morning trading today, touching $2,714 per ounce in spot trading before retreating slightly.

Gold’s gains come amid renewed geopolitical uncertainty from the Middle East, with growing question marks over the course of the conflict in the region following the killing of Yahya Sinwar. Gold’s gains in the Asian session also coincided with data from China showing further slowdown in economic growth and shrinking house prices.

Yesterday marked a fundamental shift in the course of the war in the Middle East with the killing of Hamas’s military commander. While this event was viewed as an opportunity to reach a ceasefire in Gaza and end the war, it could represent an opportunity to reach a comprehensive calm in the region.

This is what the US administration is saying through Joe Biden, Camilla Harris, and other US and Israeli officials who spoke to the media. But others see this as an opportunity to build more military pressure to achieve a “total victory,” in other words, more potential escalation on the horizon.

The Wall Street Journal’s Editorial Board believes in an opinion piece that the best way to deter Israel’s enemies is to show fierce revenge, and that in light of what happened yesterday, it deserves more support from the United States. I think this is the narrative that Israeli Prime Minister Benjamin Netanyahu will try to establish now.

In addition, Thomas Friedman, in an opinion in the New York Times, is pessimistic about the ability of this event to push toward a ceasefire, in light of the ruling coalition in Israel’s rejection of any agreement or path that leads to a ceasefire or recognition of a Palestinian state. This is true, as the most extreme ministers, Itamar Ben-Gvir and Bezalel Smotrich, spoke yesterday about the need to continue military pressure.

In addition to this military pressure, what happened may give more momentum to the Israelis’ plan to settle northern Gaza. If this succeeds, it may be implemented in the south as well, according to what Politico reported earlier this week. This is also inconsistent with the hypothesis of pushing towards a ceasefire.

In any case, Sinwar’s death will leave the region in a state of uncertainty regarding the course of negotiations and the war, given that the decision in Hamas was made through him. An Arab official also told The Washington Post that there is no answer regarding the fate of the negotiations now, and another Arab official also told The Post that there are few expectations that Sinwar’s death will constitute a turning point towards peace.

I do not believe that Israel will take any step that would ease tensions in the region, while it may avoid a massive escalation only during the US election period in response to the desires of the current administration.

This also comes with the anticipation of an Israeli attack on Iran in response to the unprecedented missile attack. It is believed that Israel may launch an attack that provokes Iran to carry out a stronger counter-response than the previous response, which in turn will lead to a series of attacks and counter-attacks that will leave the entire region in a state of uncertainty. This is what may actually happen after the US elections are over.

Away from the Middle East, and on the economic side, we have witnessed another series of economic data from China. GDP growth slowed in the third quarter to 4.6% year-on-year from 4.7%. In addition, house prices contracted for the 16th consecutive month in September. These figures were in contrast to faster-than-expected growth in industrial production and retail sales.

The continued contraction in house prices seems to enhance the appeal of gold as a safer investment destination in light of the weak sentiment among households, which will keep demand for the yellow metal high.

In the US, we also saw better-than-expected retail sales data for September yesterday, in contrast to a faster-than-expected contraction in industrial production. However, these figures were unable to change the market’s expectations about the path of interest rates for the rest of the year, which allowed gold to continue its record gains despite the strength of the dollar and the rise in bond yields.

While the Fed is still likely to cut interest rates by 25 basis points at each of the next two meetings in November and December, according to the CME FedWatch Tool.

The European Central Bank’s interest rate cut yesterday could also boost optimism that central banks around the world will continue to cut, which could also boost gold’s appeal. The cut came despite the bank’s expectations that inflation will rise again, or even return to its desired path, and that inflationary pressures from wage growth will remain.

 

Zaid Barem / YMM