Gold holds ground despite trade war fears

26 Kasım 2024

Gold holds ground despite trade war fears and easing geopolitical concerns

Written by Samer Hasn, Senior Market Analyst at XS.com

Gold is set to rise more than 0.3% today, reclaiming the $2,630 per ounce level after a massive loss of more than 3%.

Gold’s gains come despite the pressure factors represented by the escalating concerns about the return of inflation to rise after the escalation of the potential trade war, in addition to the growing hope for a ceasefire in Lebanon. While these factors may keep these gains fragile.

Gold is supported by the decline in US Treasury yields, which are heading towards a correction from their relatively high levels. The two-year Treasury yield is struggling to exceed the 4.3% level, as well as the 10-year bond yield at 4.4%.

Gold has been subject to a sharp decline since Donald Trump won a second term in the White House, in light of the possibility of inflation rising again with the return of trade wars, especially with China, to the forefront again. While Trump is heading towards escalating this war even with allies, with his talk yesterday about imposing tariffs on Mexico and Canada and expanding them on China due to their accusation of facilitating illegal immigration and fentanyl smuggling.

While these potential steps by Trump may come within the framework of forming pressure to strengthen the negotiating position and extract concessions that serve US trade interests, according to The Wall Street Journal.

These tariffs may have a negative impact on the US through rising prices of steel, aluminum, cars and spare parts. They were also met with calls for countermeasures from Mexico, for example, and imposing tariffs on US agricultural imports.

This potential impact of the tariffs may further rise concerns about the slow pace of interest rate cuts during the coming year, which have already worsened since Trump’s victory, and this may constitute an additional negative factor for gold.

As markets only expect a 25-basis point interest rate cut next January with a probability of 14%, following the possible cut next December, which is still likely so far, according to the CME FedWatch Tool.

In the Middle East, we are witnessing unprecedented hope this week about the possibility of reaching a ceasefire in Lebanon that could ease the regional war. A US official told Axios that Lebanon and Israel have already agreed on the terms of the ceasefire. The official also said that the Israeli security cabinet will approve the agreement at its meeting today.

While this momentum has been accompanied by very optimistic statements from Lebanese and US officials, it is – as in previous rounds of negotiations – met with concerns that it could collapse at the last minute. Therefore, this news may not be priced until we see an agreement actually signed.

The main points of disagreement, which is granting Israel the right to resume its military activity in Lebanon, are not resolved, and the position of the far right in Israel is unclear and has always been completely opposed to any agreement that includes a cessation of war – not to mention the insufficient US pressure on the Israeli side to push it to stop the war.

On the other hand, even if we do see a ceasefire agreement in Lebanon, it may not mean that it will be the beginning of a broader calm in the region. An official at the Royal United Services Institute told CNN that this agreement may not lead to another in Gaza.

Apart from the Middle East, gold has benefited from the rapid developments and mutual escalation on the Russian-Ukrainian war front last week. Russian forces are advancing deep into Ukraine at their fastest pace since the beginning of the war, which has in turn entered a very dangerous phase, according to Reuters. The rapid Russian push has been met with allowing Ukraine to target Russian depth with advanced ATACMS missiles, which in turn has been met with a change in Russia’s nuclear doctrine last week.

The escalation and mutual escalation increase the possibility of a miscalculation that would get the conflict out of control, which justifies the very high level of uncertainty.

 

Zaid Barem / YMM