Gold prices climbed to a two-week high on Monday, driven by renewed buying from China’s central bank, escalating instability in the Middle East, and expectations of another interest rate cut by the US Federal Reserve.
Spot gold rose 1.3%, reaching $2,667.61 per ounce by midday EDT, marking its highest level since November 24. US gold futures also gained 1.2%, trading at $2,690.60 per ounce in New York. Earlier in the day, gold had risen by as much as 1.6%, following the announcement by the People’s Bank of China (PBOC) that it had resumed purchases of the metal after a six-month pause.
“The market is hopeful that other central banks may follow China’s lead, which could potentially bring buying activity back to record levels,” said Bart Melek, head of commodity strategies at TD Securities.
China, one of the world’s largest buyers of gold, had stopped its purchases earlier this year, but the PBOC’s return to the market has reignited optimism among traders. Many are now speculating that other central banks could follow suit, further driving up demand for the precious metal.
Middle East Turmoil Adds to Gold’s Appeal
Gold’s appeal as a safe-haven asset was also strengthened by developments in Syria. Over the weekend, the Syrian government experienced a dramatic collapse, raising fears of greater instability in the region. Analysts from ANZ Group Holdings suggested that the breakdown of the regime in Syria could lead to increased demand for gold as a store of value.
“The collapse of the Syrian government could prompt a surge in haven demand, which would likely benefit gold,” ANZ analysts noted.
Rate Cut Expectations Boost Gold’s Appeal
In addition to geopolitical factors, expectations that the US Federal Reserve may cut interest rates further later this month also supported gold prices. Traders are currently pricing in an 87% chance of a 25-basis point rate cut during the Fed‘s meeting scheduled for December 17-18, according to Reuters.
The November US nonfarm payroll report, which showed continued economic rebalancing, reinforced the belief that the Fed is likely to maintain its easing stance. Analysts from ANZ pointed out that the latest payroll data supports the Fed’s dovish approach, which could keep pressure on the US dollar and benefit gold.
Gold’s Year-to-Date Gains Remain Strong Despite Volatility
Gold has been one of the best-performing assets of 2024, up nearly 29% year-to-date. Despite a sharp pullback following the US election, when traders began to anticipate higher inflation and a slowdown in the Fed’s monetary easing, gold has recovered strongly.
A report by Sprott Asset Management suggests that the recent pullback represents a healthy market consolidation, with gold having appeared overbought leading up to the election. Edward Bonner, an investment associate at Sprott, explained that the post-election period saw investment funds liquidating their positions, which likely contributed to the short-term selloff.
“Following the election, with a red sweep, funds may have been forced to unwind their positions, sell their gold hedges, and rotate into other assets,” Bonner said in the report.
Despite the recent selloff and ongoing outflows from gold exchange-traded funds (ETFs), Sprott remains bullish on gold’s long-term prospects. The firm noted that selling pressure is likely nearing its end, as the market completes its rotation.
“While the last few weeks have been challenging for gold, such extreme market moves typically burn themselves out. We believe that the market has likely hit ‘selling exhaustion,'” said Paul Wong, market strategist at Sprott.
As the US consumer and producer price reports are expected to show little inflationary pressure later this week, attention now shifts to the upcoming Fed meeting, which could further shape the outlook for gold in the weeks ahead.
Related topics:
What Did Spot Silver Close At Today
