Gold jumps to three-month high amid Middle East tensions and mixed Fed signals

Gold prices surged to a three-month high on Friday, reaching $1,985 an ounce, driven by mounting safe-haven demand sparked by the ongoing Israel-Hamas conflict. The yellow metal experienced a second consecutive week of robust gains as investors sought refuge in traditional safe assets amidst geopolitical uncertainty.

Mixed signals regarding U.S. interest rates have played a part in the gold rally. Federal Reserve Chair Jerome Powell’s remarks contributed to a softening of the dollar and Treasury yields, stating that the recent spike in yields was tightening financial conditions, potentially reducing the need for further action by the Fed.

Powell did not rule out the possibility of one more interest rate hike this year, but his comments were interpreted by the markets as a sign that the Fed might be done with raising rates. This prompted some profit-taking in the dollar, while yields, although down from multi-year highs, remained close to the 5% level.

Gold’s ascent was also fueled by softer yields and a weaker dollar, coinciding with increased safe-haven demand amid heightened uncertainty over the Israel-Hamas conflict. Observers are closely monitoring the potential for an Israeli ground assault on the Gaza Strip, which could mark an escalation in the ongoing conflict.

As of this morning, spot gold is trading at $1,982.93.

Despite the recent surge, the potential for further interest rate hikes, as indicated by Powell, may limit gold’s rally. Economic indicators pointing to the resilience of the U.S. economy and persistent inflation remain key considerations.

The Federal Reserve’s primary goal is to curb inflation. While inflation has receded significantly over the past year, it still exceeds the central bank’s 2% target. U.S. interest rates are expected to remain higher for an extended period, potentially exceeding 5% until at least the end of 2024. This outlook places continued pressure on non-yielding assets like gold.