Gold prices breached the $2,800 per ounce mark on Wednesday to hit a fresh record high as uncertainty over US elections and geopolitical tensions fueled safe-haven demand.
“Against the backdrop of persistent geopolitical risks stemming from the ongoing conflicts in the Middle East, the uncertainty surrounding the US presidential election turns out to be a key factor benefiting the safe-haven precious metal,’ Haresh Menghani, editor at Fxstreet.com, said in a report.
At the time of writing, the most active December gold contract was $2,799.70 per ounce, up 0.7% from the previous close. The contract had hit a fresh lifetime high of $2,801.65 per ounce earlier in the session.
Meanwhile, US Treasury yields slipped, which further boosted demand for non-yielding commodities such as gold and silver.
The rally in gold prices comes ahead of next week’s US Presidential elections and a policy meeting of the Federal Reserve.
Gold bulls have stayed resilient in the face of expectations of reduced bets over a larger rate cut by the Fed.
The US central bank had cut interest rates by 50 basis points in September, fueling expectations of a similar cut in November.
However, hotter-than-expected inflation and a resilient labor market in the US have since then reduced bets for a similar rate cut.
According to the CME FedWatch tool, traders have priced in a 98.9% probability of the Fed cutting rates by 25 bps at next week’s meeting.
Uncertainty over US elections
The mounting uncertainty over the outcome of next week’s US elections has boosted safe-haven demand for gold.
Polls and analysts predict a hotly contested battle between former President Donald Trump and Vice President Kamala Harris.
Both candidates have listed different sets of plans for the US economy, which has increased uncertainty over the political scenario in the US.
Investors will be closely monitoring the results of the elections next week as it could shape US politics for the next four years.
Geopolitical tensions rise
On Tuesday, an Israeli strike on a residential building in Gaza reportedly killed 100 people.
This comes after Israel carried out strikes over the weekend on Iran’s military facilities in retaliation to the latter’s attack on Tel Aviv on October 1.
Iran has vowed to retaliate against Israel as the conflict in the Middle East continues to escalate further.
Menghani noted:
The development raises the risk of a further escalation of tensions in the Middle East and contributes to the bid tone surrounding the safe-haven XAU/USD, offsetting the recent surge in the US Treasury bond yields and the US Dollar.
Economic data in focus
Investors will be focusing on the release of the third quarter GDP data in the US on Thursday. The unemployment claims report will also be released on Thursday, which will provide more cues about the country’s economic health.
Furthermore, the US personal consumption expenditure (PCE) index will be released on Friday. The data is the Fed’s preferred gauge for inflation.
Non-farm payroll data is also due on Friday.
If the data points to a resilient US economy, the Fed may adhere to smaller rate cuts at its upcoming meetings. However, any rate cuts auger well for gold as it is a non-yielding asset.
Palladium prices hit 10-month high
The price of palladium continued its uptrend, which began last week.
Prices had risen to $1,255 per ounce on Tuesday, its highest level in 10 months. The price has risen 15% in the last three trading sessions till Tuesday.
The optimism was fueled by the US’ call to the G7 nations to consider further ways of reducing Russia’s revenues by restricting palladium exports.
Russia contributes around 40% of the total palladium supply.
“The price increase was likely to have been exacerbated by the covering of speculative short positions,” Commerzbank AG said in a report. According to the CFTC, net short positions on 22 October were still around 5,500 contracts.
The German bank added:
The low price levels of platinum and palladium are likely to lead to production curtailments in South Africa. Fears that the transition to e-mobility could mean that hardly any palladium will be needed in car production just a few years from now have proved to be exaggerated.
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