Gold prices saw an increase on Friday as the dollar weakened and traders anticipated a December interest rate cut. Geopolitical tensions also played a role in boosting demand for the precious metal.
The yellow metal had experienced some losses earlier in the week following an Israel-Hezbollah ceasefire announcement. However, tensions between Russia and Ukraine helped trim those losses towards the end of the week.
Gold futures rose by 0.6% to $2,659.14 an ounce, while February futures increased by 0.7% to $2,683.79 an ounce by 1:24 ET (1824 GMT).
Russia-Ukraine Tensions Drive Safe Haven Demand
Russia’s recent strikes on Ukraine’s energy infrastructure, coupled with threats of further attacks, escalated tensions between the two nations. This conflict has contributed to the rise in demand for safe-haven assets like gold.
In the Middle East, doubts emerged regarding the sustainability of the Israel-Hezbollah ceasefire as both parties accused each other of violations.
Weaker Dollar Supports Gold Amid Rate Cut Expectations
Gold prices were also buoyed by a decline in the dollar, as markets speculated on a potential interest rate cut by the Federal Reserve in December.
Traders were betting on a 68.6% chance of a 25 basis points rate cut, with a 31.4% chance of rates remaining unchanged, according to market indicators.
Despite recent data showing strong U.S. inflation figures, expectations for a rate cut remained due to Fed officials’ support for gradual easing measures.
While the dollar saw a significant drop this week, long-term interest rate outlook remains uncertain, especially with inflation levels surpassing the Fed’s 2% target.
Analysis:
The recent rise in gold prices can be attributed to a combination of factors, including geopolitical tensions between Russia and Ukraine, doubts over Middle East ceasefire agreements, and market expectations for a December interest rate cut by the Federal Reserve. These factors have led to increased demand for safe-haven assets like gold, while also impacting broader metal prices and industrial metals markets.