Gold Plummets Below $2,100 Amidst Rising Geopolitical Tensions
Gold prices experienced a sharp decline from record highs, falling below $2,100. Several factors contributed to the recent surge in gold prices, driven by increased safe-haven demand following new political risks emerging between Yemen and the U.S. over the weekend. The U.S. military reported that Yemen's Houthi rebels fired ballistic missiles and attacked three commercial ships in the Red Sea on Sunday. In retaliation, a U.S. warship shot down three drones in a prolonged attack.
The U.S. Central Command said in a statement, "These attacks directly threaten international commerce and maritime security. We also have every reason to believe these attacks, while launched by Yemen's Houthis, were thoroughly supported by Iran."
These tensions added to the already persistent conflict between Israel and Hamas, as the ceasefire order failed on Friday after Israel accused Hamas of violating the agreement. The Israeli military resumed combat operations against Hamas, re-escalating hostilities in the Gaza Strip. Gold, considered a traditional safe-haven asset, tends to benefit from escalating geopolitical tensions.
However, another safe-haven currency, the U.S. Dollar (USD), did not find any inspiration from the recent political risks. The market is betting on the Fed cutting interest rates in March, with a probability priced in at 60%. Efforts by Fed Chairman Jerome Powell on Friday to push back expectations of policy tightening next year failed as the market remained unconvinced amid easing inflation in the U.S.
"It's too early to conclude with confidence that we have achieved sufficient progress or to speculate on when policy could be appropriately eased further," Powell said in his prepared remarks at Spelman College in Atlanta. He added, "We are prepared to tighten policy further if that becomes appropriate."
Additionally, thin liquidity conditions in early Asia trading also contributed to the sharp rise in Gold prices, as the market believes such moves come after breaking the previous all-time high of $2,079 and the psychological level of $2,100.
Meanwhile, a recent survey by the World Gold Council (WGC) indicated that 24% of central banks intend to increase gold reserves in the next 12 months, as they grow increasingly pessimistic about the U.S. Dollar as a reserve asset. This encouraging news is also a positive signal for Gold prices.
Looking ahead, it remains to be seen whether Gold will find new momentum to continue its upward trajectory, as the U.S. Dollar may attract support from geopolitical tensions in the Middle East. While the dovish expectations of the Fed may dominate risk sentiment and U.S. Dollar pricing, traders prepare for the release of crucial U.S. employment data later this week.
Therefore, Gold prices are expected to remain dependent on the dynamics of the U.S. Dollar and Fed expectations as U.S. bond yields ease after the recent sell-off. Political developments will also play a role in influencing Gold price action.
The U.S. Central Command said in a statement, "These attacks directly threaten international commerce and maritime security. We also have every reason to believe these attacks, while launched by Yemen's Houthis, were thoroughly supported by Iran."
These tensions added to the already persistent conflict between Israel and Hamas, as the ceasefire order failed on Friday after Israel accused Hamas of violating the agreement. The Israeli military resumed combat operations against Hamas, re-escalating hostilities in the Gaza Strip. Gold, considered a traditional safe-haven asset, tends to benefit from escalating geopolitical tensions.
However, another safe-haven currency, the U.S. Dollar (USD), did not find any inspiration from the recent political risks. The market is betting on the Fed cutting interest rates in March, with a probability priced in at 60%. Efforts by Fed Chairman Jerome Powell on Friday to push back expectations of policy tightening next year failed as the market remained unconvinced amid easing inflation in the U.S.
"It's too early to conclude with confidence that we have achieved sufficient progress or to speculate on when policy could be appropriately eased further," Powell said in his prepared remarks at Spelman College in Atlanta. He added, "We are prepared to tighten policy further if that becomes appropriate."
Additionally, thin liquidity conditions in early Asia trading also contributed to the sharp rise in Gold prices, as the market believes such moves come after breaking the previous all-time high of $2,079 and the psychological level of $2,100.
Meanwhile, a recent survey by the World Gold Council (WGC) indicated that 24% of central banks intend to increase gold reserves in the next 12 months, as they grow increasingly pessimistic about the U.S. Dollar as a reserve asset. This encouraging news is also a positive signal for Gold prices.
Looking ahead, it remains to be seen whether Gold will find new momentum to continue its upward trajectory, as the U.S. Dollar may attract support from geopolitical tensions in the Middle East. While the dovish expectations of the Fed may dominate risk sentiment and U.S. Dollar pricing, traders prepare for the release of crucial U.S. employment data later this week.
Therefore, Gold prices are expected to remain dependent on the dynamics of the U.S. Dollar and Fed expectations as U.S. bond yields ease after the recent sell-off. Political developments will also play a role in influencing Gold price action.
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