Chaos in the Middle East appears to be contained within Gaza as Israel continues to wage its war against Hamas. However, the static geopolitical environment is taking its toll on gold as prices appear stuck at $2,000 an ounce. Although October’s monthly close was an all-time high for the precious metal, some investors are feeling frustrated that gold hasn’t surpassed this mark in absolute terms. With gold prices ending the week at $2,002 an ounce, the market is about 4% away from its 2020 all-time highs.
Resistance at $2,000
$2,000 represents a major long-term resistance point for gold. In order to push to $2,100 an ounce, prices will need to consolidate or fall back a little for a running start. This has resulted in gold losing some momentum. Geopolitical events, although impactful in the short-term, do not provide sustainable momentum for gold. The market needs constant escalation of events to sustain safe-haven demand. Once tensions calm or remain steady, the need for a safe-haven diminishes.
Geopolitical Uncertainty and Volatility
World events are creating a highly volatile market. The World Bank predicts a 6% rise in gold prices by 2024, driven by geopolitical uncertainty. The conflict in the Middle East, if escalated, could lead to heightened global uncertainty, reduced risk appetite, and lower consumer and investor confidence. Additionally, analysts expect gold to remain well supported at current levels due to overall geopolitical uncertainty.
Global Destabilization and Geopolitical Uncertainty
Unwinding of globalization, the global de-dollarization trend, the green energy transition, and the need to develop domestic supplies of critical materials continue to destabilize the world and fuel geopolitical uncertainty. In this environment, volatile gold prices are expected to follow an upward-sloping trend line.
Recession Fears and Fed’s Monetary Policy
There are growing fears that the global economy is on track to fall into a recession, despite the resilience of U.S. consumption. Signs of slowing growth are evident as the U.S. labor market cools. Weaker-than-expected economic data suggests that the Federal Reserve will halt raising interest rates and maintain a tightening bias. While geopolitical events offer short-term momentum in gold, a shift in the Federal Reserve’s monetary policy could be a bigger driver for sustainably higher prices.
Long-Term Investors’ Hesitation
Long-term investors have hesitated to enter the gold market as the Federal Reserve maintains its tightening bias. Higher interest rates would push the U.S. dollar and bond yields higher, creating headwinds for gold. However, as these headwinds start to fade and the market anticipates the Fed’s next move as a rate cut, investors are expected to return to gold.
Gold prices remain stagnant at $2,000 an ounce due to the static geopolitical environment and the need for a running start to push beyond this resistance point. Geopolitical uncertainty and volatile world events continue to impact gold prices in the short-term. However, the Federal Reserve’s monetary policy and the anticipation of a rate cut may be the key factors for sustainably higher prices in the future.