Gold buoyed by hawkish Fed and geopolitical tensions

Gold prices rise on hawkish Fed and Middle East tensions; further gains capped by strong dollar.

Berto Tordecilla

Berto Tordecilla

Gold prices rose to $2,042.30 per ounce at 07:45 GMT on Thursday, driven by a hawkish stance from the US Federal Reserve. The escalating tensions in the Middle East further heightened safe haven demand, contributing to the upward momentum in gold prices.

The Fed signaled interest rates would need to remain elevated for longer in order to combat stubbornly high inflation. This boosted gold’s appeal as investors flocked to safe haven assets when stock markets reversed. Gold was also supported by rising geopolitical uncertainty as the conflict between U.S.-led forces and Yemen’s Iran-aligned Houthi rebels worsened.

Further upside for the precious metal was capped by a surging U.S. dollar, which traded close to its highest levels in seven weeks.

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Dollar holds near seven-week high after Fed damps rate cut hopes

Fed Chair Jerome Powell said it was premature for the central bank to pivot to rate cuts this soon, especially in light of still high inflation. However, Powell did leave the door open to potential rate decreases later in 2024 if economic conditions warrant.

Powell also reiterated expectations for a resilient U.S. economy in 2024 and said he foresees inflation continuing to moderate over the coming months. His comments increased market expectations that the Fed could cut rates as early as May, with traders pricing in a 63% probability of a 25 basis point reduction.

Looking further ahead, markets expect the Fed’s benchmark rate to end 2024 in a range of 3.75% to 4.0%, down substantially from the current 5.25% to 5.50% level.

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