Gold prices have climbed in the last few sessions to trade near its all-time high on Wednesday.
Prices have been supported as traders maintained bets that the Federal Reserve will cut interest rates further.
Lower interest rates bode well for gold as it is a non-yielding asset unlike bonds. Also, lower interest rates increase liquidity in the economy and bring down the borrowing costs for the public.
Additionally, geopolitical tensions continue to simmer in the Middle East, which has kept the safe-haven demand intact for the precious metal.
Prices remain near record highs
At the time of writing, the most-active gold contract on COMEX was at $2,691.60 per ounce, up 0.5% from the previous close. Prices had hit a record high of $2,696.90 an ounce in September.
In the last couple of weeks, gold prices had mostly traded rangebound near its record highs. Even as geopolitical tensions and hopes of further interest rate cuts by the US Fed were bullish factors for gold, a strong dollar created headwinds for further upside.
Moreover, at the beginning of October, the market was expecting a further 75-basis-points of rate cuts by the end of this year. However, those expectations have been scaled back due to hotter inflation in the US and a resilient labour market.
Carsten Fritsch, commodity analyst at Commerzbank AG said in a report:
The fact that the gold price came under pressure only briefly and has since recovered most of its losses is likely due to the increased geopolitical risks in the Middle East.
Traders have priced in a 91.1% chance of the Fed cutting rates by 25 basis points in November, according to CME Fedwatch. At the September meeting, the Fed had cut interest rates by 50 bps, surprising the investors and traders.
Outlook for gold prices
Gold prices have breached the immediate resistance of $2,685 per ounce, and looks poised to rise to its record high of $2,700 an ounce.
Haresh Menghani, editor at Fxstreet.com, said in a report:
This is closely followed by the $2,700 round-figure mark, which if cleared decisively will set the stage for an extension of a well-established multi-month-old uptrend amid positive oscillators on the daily chart.
On the lower side, gold prices have support near $2,650 per ounce level. If gold falls below this level, prices could decline towards $2,632 an ounce, according to Fxstreet.com.
“Any further decline is likely to attract some buyers and remain limited near the $2,600 round-figure mark,” Menghani said.
Upside depends on geopolitical risks
According to Commerzbank AG, gold is currently buoyed by expectations of further rate cuts and geopolitical risks.
The ongoing conflict in the Middle East between Iran and Israel has increased safe-haven demand for the precious metal.
On October 1, Iran had fired ballistic missiles towards Israel. Safe-haven demand for gold increased as the market waited for Israel’s response to Iran’s attack.
However, since Iran’s attack, there have not been any retaliation from Israel. Reports claimed that Israel may not attack oil facilities of Iran, and instead strike military targets.
Commerzbank’s Fritsch said:
Should the media reports prove to be true and Israel spare Iran’s oil and nuclear facilities in the expected retaliatory strike, geopolitical risks would decrease and support for the gold price from this side would also fade.
“We therefore see slight downside risks for the gold price and expect the gold price to be 2,600 USD at the end of the year,” he added.
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