Gold prices are back in positive territory early Monday, signaling a modest rebound after two consecutive weeks of losses. The precious metal is benefiting from the further escalation of geopolitical tensions between the Middle East and the United States.
Geopolitical risks have intensified, setting the tone for a critical week that includes the highly anticipated US Federal Reserve (Fed) policy announcements. Investors are approaching the week cautiously, reacting to a Reuters report quoting US President Joe Biden and officials, revealing that three US service members were killed and dozens wounded in an unmanned aerial drone attack on forces stationed in northeastern Jordan near the Syrian border.
President Biden stated, “While we are still gathering the facts of this attack, we know it was carried out by radical Iran-backed militant groups operating in Syria and Iraq.” He added, “Have no doubt – we will hold all those responsible to account at a time and in a manner of our choosing.”
As markets remain wary of the US response to this escalation by Iran-backed militias, they are also keenly awaiting the crucial Fed interest rate decision scheduled for Wednesday. Gold prices jumped on the heightened geopolitical risks, but the upward momentum is tempered by increased demand for the US Dollar as a safe-haven asset.
Furthermore, the recent string of strong US economic data has diminished expectations for a March Fed rate cut, acting as a headwind for Gold. The market is currently pricing in about a 48% probability of a March rate cut, down from the 60% chance seen a week ago.
Optimism about additional stimulus from China faded as concerns over the country’s property market resurfaced, particularly with a Hong Kong court ordering Evergrande, the world’s most indebted property developer, to liquidate.
Despite these challenges, Gold prices could find continued support if the risk-off sentiment intensifies, leading to increased safe-haven flows into US government bonds and a subsequent decline in US Treasury bond yields. The US Dollar may also feel pressure from falling US Treasury bond yields, with the 10-year benchmark US yields currently losing 0.70% on the day to trade below 4.15%.
With a relatively light economic docket on Monday, geopolitical developments and pre-Fed positioning are expected to influence Gold price action in the coming days. Investors will closely monitor how the situation unfolds and its potential impact on safe-haven assets.
