Oct 24, 2023

Gold prices have mounted a very strong rally in the face of increased geopolitical stress.

xauusd daily chart

XAUUSD: Daily Chart

The price of gold has rallied from under $1,850 to trade at almost $2,000. The market is now looking at the $2,064 level from April.

Gold prices have surged on increased geopolitical tensions and the market’s belief that the Federal Reserve has finished its rate hike cycle. Rising bond yields in the open market, 4.85% on Monday, had Fed officials saying that the market is doing the central bank’s job in tightening financial conditions.

The situation in the Middle East also worsened with Israel’s military starting a ground offensive against Hamas.

US Treasury yields did dip on Monday after billionaire Bill Ackman announced that he was exiting his UST short.

“There is too much risk in the world to remain short on bonds at current long-term rates,” Ackman said. He added that “the US economy is slowing faster than recent data suggests”.

CME Markets were more bullish about the economy, saying gold will show strength in the face of US rate hikes, rising expectations for a soft landing, and heightened geopolitical risks.

“Gold is a global investment asset. There are very different economic scenarios across countries around the world,” said Stefans. “So while it makes sense to cut allocations in the US and North America, the opposite is true in a lot of other countries where it makes sense to add gold to portfolios,” said Jin Hennig, head of metals at the exchange.

Gold now has multiple drivers for further gains, including out-of-control spending in the US government.

Investor David Stockman said the latest war spending package is yet more waste.

“At the end of the day, the Joe Biden war package tells you all you need to know about Washington’s utter dysfunction. That is, $61 billion for a war that undermines Homeland Security, $14 billion for an ally that doesn’t need it, $14 billion for a border war that could be ended with the large-scale guest worker programme that America desperately needs, and $14 billion for do-goodism in a world that has had more than enough of Washington’s good works for a long time to come,” Stockman said.

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