Gold retreating from peaks but holding above $2,000

Factors behind surge and subsequent retreat
Gold retreating from peaks but holding above $2,000
Gold market volatility

Gold prices experienced a slight increase during Asian trade on Tuesday, stabilizing after reaching record highs earlier in the week. This was supported by expectations of a less accommodative Federal Reserve (Fed) and increased demand for safe-haven assets.

At the beginning of Monday’s trading session, there was an unusually large surge in gold prices, briefly reaching a lifetime high of $2,148.78 per ounce before sharply declining. At the time of writing, the yellow metal is recording $2,027.52.

Multiple factors contributing to increase

Several factors contributed to this surge, with the most notable being signals of a somewhat less hawkish stance from the Fed, which raised expectations of early interest rate cuts by the Central Bank.

The demand for gold as a safe-haven asset increased after an attack on U.S. vessels in the Red Sea raised concerns about a broader conflict in the Middle East. Additionally, a separate attack on a significant gold mine in Peru heightened fears of supply disruptions in the gold market.

Although gold prices retreated from their record highs, they still remained well above the coveted $2,000 per ounce level, suggesting the potential for further gains. Spot gold rose by 0.2 percent to $2,032.60 per ounce, while gold futures expiring in February increased by 0.4 percent to $2,050.35 per ounce.

As the market awaited key U.S. nonfarm payrolls data on Friday, the optimism regarding early interest rate cuts by the Fed was somewhat tempered. This led to a reassessment of rate cut expectations, with traders now pricing in a 49 percent chance of rate cuts as early as March 2024, down from the 60 percent chance at the beginning of the week.

Nonfarm payrolls is a metric that quantifies the monthly change in employment levels, excluding the agricultural sector. The creation of jobs serves as a crucial indicator of consumer spending, which constitutes a significant portion of overall economic activity.

This uncertainty contributed to a further rebound of the dollar from recent lows, consequently limiting the recent gains of gold.

Read more: Gold prices, contingent on Fed moves and economic data

Significant demand

Nevertheless, it is expected that gold will continue to attract significant demand, as the market remains convinced that the Fed has ceased raising interest rates in this particular cycle. Rising interest rates increase the opportunity cost of investing in gold, which had negatively impacted the yellow metal earlier this year. Noteworthy that gold had also achieved substantial gains throughout November.

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