- Gold has benefitted from US political uncertainty.
- Tensions in the Middle East have kept demand for bullion high.
- The economy grew by 2.8%, missing forecasts of a 3.0% expansion.
Gold prices reached a record high on Tuesday and extended gains on Wednesday as safe-haven inflows increased with geopolitical uncertainties. Investors were concerned about the upcoming US elections, with polls showing a tight race. At the same time, tensions in the Middle East escalated when 93 Palestinians died in an Israeli strike in Gaza.
Gold (Source: Bloomberg)
The US presidential election is looming large, and the race between Trump and Kamala is tight. Tight races create a lot of uncertainty about the possible outcome, which increases market volatility. At the same time, risk sentiment drops as investors prefer the safe haven assets. Gold has benefitted from this uncertainty. However, if Trump wins, the outlook will be for higher inflation and interest rates. Consequently, th yellow metal might drop.
Furthermore, tensions in the Middle East have kept demand for bullion high. The conflict in Gaza escalated when Israel hit and killed 93 Palestinians. Moreover, the war with Hezbollah continues, raising fears of the impacts on the global economy. Meanwhile, although Israel spared Iranian oil in its retaliatory attack, Iran might respond and escalate tensions. As long as these conflicts continue, there will always be a risk of a wider war that will send investors to buy gold.
Elsewhere, data revealed that demand for gold in India soared due to the Diwali festival. Buyers bought more gold despite the high prices.
Meanwhile, the dollar eased on Tuesday, making gold cheaper for foreign buyers. The greenback fell after data revealed some weakness in the US labor market, solidifying bets for a November Fed rate cut. Job vacancies in the US fell to 7.44 million, below forecasts of 7.98 million. The drop indicated poor demand for labor. Softness in the labor market is a big trigger for the Fed.
In September, the US Central Bank lowered borrowing costs by 50-bps points due to signs of deterioration in the sector. Therefore, any weakness boosts rate cut expectations. Currently, markets are pricing a higher 98% chance of a rate cut in November. Lower borrowing costs are bullish for gold prices.
Furthermore, data on Wednesday showed a smaller-than-expected growth in the US GDP. The economy grew by 2.8%, missing forecasts of a 3.0% expansion. Meanwhile, private employment increased more than expected.
