Gold prices touched a high above $2,000 an ounce on Friday for the first time since early August, as the Israel-Hamas war raised worries about the potential spread of violence in the Middle East, leading investors to seek safety in the precious metal.
On Friday, December gold
GC00,
GCZ23,
rose $13.90, or 0.7%, to settle at $1,994.40 an ounce on Comex after trading as high as $2,009.20. Prices hadn’t traded above $2,000 on an intraday basis since Aug. 1 and it hasn’t settled above that level since July 31, according to Dow Jones Market Data. The most-active contract climbed 2.7% for the week.
“Gold has been strengthened primarily by safe haven flows in the last two weeks amid the geopolitical tensions in the Middle East,” Fawad Razaqzada, market analyst at City Index and FOREX.com, in market commentary.
“Slightly dovish” comments from U.S. Federal Reserve Chairman Jerome Powell on Thursday has also weighed on the U.S. dollar slightly, further underpinning the metals and causing bond yields to fall back, he said. Lower bond yields and a weakening dollar can make commodities priced in the U.S. currency more attractive to buyers, compared against other assets.
The 10-year U.S. Treasury yield
BX:TMUBMUSD10Y
has fallen to 4.901%, down from 5.171% Thursday. Thursday’s level was the third-highest of this year.
Read: Why stock-market investors are fixated on 5% as 10-year Treasury yield nears key threshold
On Thursday, Powell told the Economic Club of New York that inflation is still too high and “a few months of good data” are only the beginning of what is needed to bring inflation back to 2%. He also said the Fed was “attentive” to tighter financial conditions caused by the recent run-up in longer-term bond yields.
Read: Why gold prices are up as investors look to Powell’s remarks for hints on the outlook for interest rates
Questions remain over the direction of bond yields, however, said Razaqzada. “It is too early to call the top for yields. If they simply consolidate around the current levels, this would still represent a big opportunity cost for holding onto assets that don’t pay any interest or dividends like gold.”
The precious metal also “could go tumbling lower again in the event of de-escalation in the Middle East situation,” he said, adding that “a potential trigger for this reversal might be a potential ceasefire between Israel and Hamas.”
Read: What Israel-Hamas war means for gold as investors seek safety
So, “it wouldn’t take much to push gold back down but for now, price action is telling us that there is strong bullish momentum behind the gold rally,” said Razaqzada. “As traders, we must respect that and await a key reversal pattern before potentially looking for bearish trades.”
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