By Rania Gule
At the beginning of the week, gold shows a clear downward movement near the $2,671 level. However, it remains unable to sustain a clear continuation in this direction. In my view, this negative performance reflects the impact of several intertwined factors, most notably the hawkish expectations for the U.S. Federal Reserve’s monetary policy. At the same time, the rise in U.S. Treasury yields and the strengthening of the U.S. dollar to record levels are placing additional pressure on gold prices. These dynamics put gold under the weight of market preferences for yield-generating assets amid the rising opportunity cost.
On the other hand, we cannot overlook the escalating geopolitical tensions, whether in Ukraine or the Middle East, which reinforce gold’s role as a haven. These tensions are limiting potential losses by maintaining stable demand for gold as a hedge during times of crisis. Therefore, I believe these geopolitical factors serve as a key support for gold prices. However, they are not sufficient to counterbalance the pressure from hawkish monetary policies, at least for now.
Last week, gold was affected by stronger-than-expected U.S. employment data. These figures strengthened the belief that the Federal Reserve will maintain its restrictive monetary stance, leading U.S. Treasury yields to climb to their highest levels in more than a year, alongside a stronger U.S. dollar. These developments have not favoured gold, which continues to struggle in an environment marked by rising yields.
In my opinion, amid the volatile market sentiment and growing risk aversion, there is limited support for gold. This support is more psychological than fundamentally driven, leaving gold vulnerable to deep corrective moves if the Federal Reserve’s hawkish expectations persist. I believe investors need to see more economic indicators before making long-term strategic decisions regarding gold.
Attention may now shift toward the upcoming U.S. inflation data this week, which could provide crucial signals about the future direction of monetary policy. This data will play a pivotal role in determining whether the Federal Reserve will stay its current course or pivot under market pressure. In my view, any signs of declining inflation could weaken the dollar and temporarily support gold. However, the overall trend will remain influenced by hawkish Fed policies.
Geopolitical tensions also add another layer that cannot be ignored. The newly imposed U.S. and British sanctions on Russia’s oil industry, along with ongoing clashes in the Middle East amid talks of a Gaza ceasefire and a potential U.S.-Russia meeting to end the Ukraine war, heighten uncertainty. While these conflicting developments may contribute to gold’s safe-haven appeal, their impact remains limited compared to direct economic factors. In my view, these tensions may provide short-term opportunities for gold speculators but are not enough to cause a significant shift in the long-term trend.
In conclusion, it seems that gold prices are caught between the hammer of hawkish monetary policies and the anvil of geopolitical tensions. While tensions help limit losses, their positive impact remains limited in the face of a strong dollar and rising bond yields. Therefore, I believe investors should exercise caution when dealing with gold at this stage. Betting on gold as a haven must be carefully calculated, taking into account both the economic and geopolitical factors currently weighing on the market.
Gule is Senior Market Analyst at XS.com
