Gold cuts losses as global uncertainty continues

18 Kasım 2024

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

Gold reverses its downward trajectory since early November, rising more than 1.5% to reclaim $2,600 an ounce, after hitting its lowest level since mid-September last week.

I believe the strength gold is showing as it tries to cut its losses reflects the drivers behind the yellow metal. Economic uncertainty, trade wars, and the potential escalation of conflicts in Europe and the Middle East are likely to keep gold’s appeal as a safe haven.

Despite Donald Trump’s previous campaign promises to end the ongoing wars in a very short time after taking office, there is growing skepticism about this narrative, which the Republican president has never fully detailed. The recent escalation of tensions on the Ukrainian and Middle Eastern fronts further complicates the scene and reinforces these doubts – which experts and opinion columnists have increasingly begun to talk about lately.

In Ukraine, after the massive Russian missile attack on Sunday, the US administration responded by allowing Ukraine to target Russian depth with advanced ATACMS missiles. Raising the ceiling of the US mandate for Ukraine in this war is usually met with further Russian escalation.

Although this escalation may come within the framework of strengthening the negotiating position, I believe that more and more escalation may increase the possibility of a miscalculation that may lead to an unprecedented expansion of the conflict instead of pushing towards negotiations.

As for the Middle East, concerns prevail about the possibility of the conflict between Iran and Israel escalating in the transitional period that will extend until January 20th. Iran may respond to the Israeli attack on its territory last October. This is what an Israeli counter-response may entail, and thus brings to the minds of investors the potential turmoil that may affect the global economy with the possibility of disrupting the flow of oil supplies and global trade in the region.

With Trump’s victory, the Israeli side may move to take a more hardline stance in the region, as Prime Minister Benjamin Netanyahu bets on a free hand in the region from the next Republican administration. This escalation may reach the point of targeting Iranian nuclear facilities, as Republican Representative Lindsey Graham called on Netanyahu to strike those facilities, according to Axios.

While this targeting of key facilities, in addition to oil facilities, in Iran may push the Islamic Republic to pressure the United States through the potential economic impact resulting from its obstruction of the flow of trade through the Strait of Hormuz.

That said, I believe that geopolitical factors may remain among the factors driving gold prices next year with no horizon for resolving the conflicts in the near future.

As for trade wars, we do not know for sure how trade relations between China and the United States will be with the return of Trump, who threatens to escalate the war through huge tariffs. However, warnings have long been made about the consequences of trade wars on global economic growth and increasing uncertainty.

While the economic consequences will not be limited to China alone. Economist Paul Krugman believes in an opinion piece in The New York Times that Donald Trump may be the reason for the United States losing this war, due to a number of reasons, including the president’s “ignorance” of how global trade works, by insisting that tariffs do not harm consumers.

In light of these various factors, Goldman Sachs has reiterated its target for gold at $3,000 per ounce in December next year.

In contrast, the factors that pressure gold to decline appear to be controlling recently and may push the yellow metal further down in the short term. After Trump’s victory, the acceleration of inflation in the United States and the cautious statements from the Federal Reserve Chairman, markets no longer expect an interest rate cut at the first meeting of the Federal Reserve next January. The probability of a 25-basis point cut in January is no longer more than 20%, while a cut in December is still likely so far, according to the CME FedWatch Tool.

 

Zaid Barem / YMM